INDIA NEEDS COST ADVISORY

The capitalist will never want the government, not to provide tax sops or export incentives. Their focus will be how to squeeze the government and amplify the shareholder's wealth. I might sound harsh but the fact goes that many industries did not want cost efficiency and cost management since the final report goes to the government. If the government becomes educated enough to read the recommendations then doubling the shareholder's wealth will be set back as sops and incentives will dry down. Indian economy is now standing an inflection point where many new opportunities will open up for the economy.   This raises the point that did work for the betterment of the society lead to dropdown or it should have been focused on doubling the profits of the Industries.  No one can control pricing decisions.  The day pricing decisions are being controlled dilution of the segment begins for every profession. It is better to hire as a consultant and employ rather becoming an obstacle for the shareholders. Well, I will come to this point later.

Brexit and Trade war both are an opportunity for India to grow their exports and create new trade agreements. But giving tax sops and export incentives are not going to make the trade relationships affected in the long term keeping the global change in trade mindset by different countries. Donald has been clever enough to pass this information to the global economy that trade might be creating an impact on individual economic growth and creating more growth for exporting countries at the cost of the domestic economy. Well, many might say that this is too early to speak but the tune is set and it's going to be played accordingly.

When one’s economic cost of production is not strong enough we find these sops and incentives to play their game. These are actually a cost to the taxpayers and revenue to the exporters. Lack of adoption of new cost management practices leads to cost for the society. As well all know that cost management and cost efficiency is for the betterment of the society at the same time lack of adopting the same creates a burden on the economy. The adjustment of tax sops and tax incentives given to the exporters is adjusted from higher taxes in the other vertical which reduces the purchasing power of the society and more importantly pushes up the inflation of the economy as taxes go up.

This is a vicious cycle which can be eliminated only through the adoption of cost management strategies. Many will debate that adoption of advanced technology, replacing the traditional cost of production would automatically lead to low cost of production. Well, this technology adoption comes with a significant cost which cannot be taken up by many companies and further technology adoption will make the product competitive buy it will be a myopic sight.  

Product costing, efficient pricing of goods to make the product affordable for the larger society is the key requirement of the society. In most cases, it has been found that cost methods are not appropriate and strategic cost management is not in place. Life cycle costing, transfer pricing mechanisms, target costing has not been implemented. Only cost appropriation following the guidebooks of cost allocation.  In many industries as per the threshold of the government notification cost audit is not required. Well, the point is how the government will come to know that how much export incentive and to which sector to be given. Even if cost audit is not applicable cost accountants can be hired to get their help. Growing complexity of running a business deters many from adopting twin audits in their organization.  This might have been the reason why cost audit was curtailed down from the earlier historic level. Well in these circumstances the company can appoint cost accountants as a consultant or employ them within the organization so as their expertise can be utilized within the organization.

Well, the cost accountants profession thinks for the betterment of the society but the companies of industries are capitalist minds and hence they would want export incentives and sops to improve their profitability and shareholders wealth. This might be the reason behind why the cost accounting has been diluted in the recent past. If the government does not get any report then industries can demand whatever their shareholders want them to double their earnings.  

Cost management consultants can be adopted as an employee or as a consultant to get in-house reviews of strategic cost management and cost can be improvised for the benefit of the organization. Well, no profession can control pricing decisions but it can amplify the revenue growth of the organization and can make the industry to be more competitive. It’s better to double the revenue of the corporate rather making the suggestions for the betterment of the society at the cost of the corporate profits.  I find Indian Industries should use the professional expertise of cost management for making their profits to grow by many folds. 

Indian export Future..Price of Ignoring the Cost Accounting Series 1

The trade war has opened up the prospects for the cost accountants provided they are well prepared to generate outcome form the same. If the cost accounting tools do not have any myopic vision hence India needs to capitalize on the opportunity provided by such tools through cost accountants.    But does India is taking the advantage of the professional expertise and acumen.   I doubt.  The below historical data analysis and the rationales speak loud that the cost accounting tools, strategies and profession, and professional acumen both faced the delay of recognition and is yet to get its credits. I hope the readers would agree to the same point after reading the same. Trade restriction will grow more in the future as I have been telling in my previous articles that the doors of globalization will be closed when they have been exploited the trade. Down the line again some new trade wars would come up which might impact the Indian exports in the long term.  Indian has been losing the export competitiveness a hence always scouting for new countries and new trades. The volume of export has picked up but does not reveal Indian export is competitive.

In 2013/14, India's merchandise exports stood at $314.4 billion. In the next year, it fell to $310.3 billion. And the next year, 2015/16 saw a further fall to $262.3 billion before it improved marginally to $275.9 billion in 2016/17.

The strategy of jumping from Agriculture to services and not into manufacturing would not be a long-term sustainable economic growth for India from the current global market conditions.    The reason being that services in the long term would be controlled by Artificial Intelligence and Block-chain and hence export of services would not be required. Further new countries competitiveness in services could replicate Indian exports.  Now the biggest question is where India will stands in the long term in terms of the export market.

India is a very small player on the global landscape of export. India’s share of total world merchandise exports was 0.6% in 1995 rising to 1.7% by 2014. On the other hand, its neighboring country China’s rise is astonishing, accounting for 12.4% of the world’s merchandise exports, more than four times its share in 1995. To gain some perspective on total merchandise exports in China was $ U.S 2.3 billion in 2014, compared to India’s $U.S 17.5 million. Thus, India’s exports were only 14% of China’s.

If we look within the Asian countries about the growth of merchandise export we find that Japan showed the way initially when its manufacturing techniques powered it to become a global manufacturing powerhouse in sectors ranging from autos to consumer durables to imaging. Later the Asian Tigers, especially Taiwan and South Korea grew rapidly because of their engineering and manufacturing competitiveness. After that came the rise of China, which became the production base for all sorts of products from steel to solar panels, and from mobile phones to computers.

In India, we find that giving tax sops have been taken as the competitive tool but with currency volatility and fiscal and Current account deficit going for wild toss the leeway of export sops through taxation gets negligible pressure. In other words exports, sops stand out to be the taxpayer’s money. Tax sops for promoting export is not cost management neither its tool sustainable for the long term.  This speaks that efficient cost management and cost accounting tools are not being practiced. Cost Accountants knowledge is not being fully recognized and this is a big gap for the society.

Cost Accounting tools were never accepted in broader fashion and the professional expertise was suppressed since competitive rival profession took the easy steps of promoting tax sops to make the Indian export competitive.  

Cost measurement and efficient utilization of resources would lead to the make Indian goods affordable and competitive without indulging in any trade manipulative practices.   Cost Accountants who are joining the industry should focus on strategic cost management aspect where they can create an impact on bridging the gap within the society. Focusing on labor cost competitiveness would be a long-run game hence one has to accept that for the sustainable export competitiveness to grow.   Rising inflation over the long-term changes in the dynamics of labor cost competitiveness. Hence it's not a sustainable economic growth.

The Indian Foreign Trade Policy (FTP) Statement of 2015-2020 has a number of dimensions including enhancing market access; upgrading product quality and product/service diversification; building key transport links internationally; enhancing the efficiency of India’s export and trading infrastructure, and enhancing India’s reputation abroad. But I don’t find much on the part of cost efficiency and cost reduction and adoption of costing tools within the policy framework to create the competitiveness.

If we focus on Asian economy we find India has to compete with countries like China and Japan, the former is trade manipulator and the later is the mother of many new cost accounting strategies. The competition for India is too high in terms of making its export grow within the Asian economies.  Efficient cost management and efficient pricing would be the only path for keeping the Indian exports to remain competitive.   On the other hand, making the goods affordable to bridge the gap between the societies is the biggest opportunity for a long-term sustainable economy.

Adopting advanced technology does not mean resources are utilized efficiently or the product would become competitive if you don’t adopt cost pricing methodology. Currently Indian economy has been focusing on increasing the volume of export but not much on the competitiveness. The 4^th Industrial revolution will not only change the dynamics but would make Indian export to less competitive.

Indian might be paying the cost for delayed identification or yet to recognize the full potential of the cost accounting profession and professionals.

PATH To National Company Law Tribunal

Those who are doing work related to NCLT I find them to be the next level of teachers for the corporate world where they can share the various angles of strategic management failures. I will not be surprised if I find a few authors of corporate failures coming out from the professional who is doing the work of NCLT. Its huge lesson book for the upcoming generation that how corporate failures have eroded the goodwill and converted them same is a bankrupt company or down with debt my many times compared to their profits.   The most surprising the thing is that when the debt was climbing new heights how did the management keep moving ahead despite knowing that the surging debt is hundred times more than the profits. How could long-term overvalued leveraged presentation and books of accounts be taken forward by the financial institutions?  Corporate governance has been a nowhere. It’s a collapse at every angle of the economy with breach of trust of the leaders of the Industry.

 I know many cost accountants were auditors of these companies who have reached to the door of NCLT today but the biggest question is that did those audit reports raised the red flag for the faulty decision making and wrong short-lived myopic strategic decision adopted by the management. Even if so then they have been ignored by whom and what was their intention for hiding the facts of the audit reports.  The current cases at NCLT and the way they are rising speaks audit have been a failure and they have failed to alert anyone in the system or no one bothered to listen. Practically auditors and audit report have simply remained as a compliance part and not being taken as an efficient report to judge the direction of how the company is moving ahead. Risk management has been a big failure.

Cheap debt, unsustainable business plans, extravagant valuations, myopic short-term vision, created a huge trouble for the Indian corporate.  The management strategy has been so short-lived and so hypersensitive without accessing the various risk of diversifying the business. Well, diversification of risk is the key matter but shifting the focus from the core business and getting into noncore business is not a blue ocean strategy to move ahead.   The cases like Ruia’s ,Singal, Gaur’s ,Dhoots and many more Icon of the Indian industries reveals that somewhere they had adopted decision wrong decisions in management due to which they have ended up with NCLT. Government policy has been one of the reasons behind the collapse but at the same time over leveraged foreign assets take over turns out to be a huge lesson where strategic decision went for a toss.

In many cases as per the media and other public domain sources I find that corporate frauds were created in some places but in many places, the whole management planning and decision was so myopic that at any volatile movement of any of the factors of the economy has eroded their goodwill and creditability for the long term.  Those managers and senior team management people who took hefty packages and lavish corporate presentation and myopic decision making have now mostly moved into a new organization and are currently behind the crowd of corporate India.

I find that execution of strategic decision has been a significant risk for these companies. Yes, execution is not a cup of tea for everyone.  The failure at various angles for these companies who went through NCLT speaks loud and clear that execution has been a failure and measured steps and efficient cost management was a failure.  Management decision making can go wrong but not to the level of mounting debt where the whole system comes under collapse.

 These management decision failures raise my thought that whistleblowers need to come up ahead for raising the red flag when decision making goes wrong and insiders could find the same. These whistleblowers would at least save the Banks and Financial intuition and minority shareholder stakes. Whistleblowers would keep these managements under vigilance when they don’t care about a wrong decision. Over-leveraged valuations and taking quantum leaps without accessing the risk management within the decision or policy which have been taken is a significant threat and risk for the economy when the mounting loss spills over the economy.  

Cross-border transactions have turned out to be a failure for the corporate. There is endless reason for the same but the biggest of them is lack of risk measurement and lack for another Plan B in case of failure of the earlier strategy. Measured and efficient strategic decision making have not been taken by any of these NCLT cases.

The biggest burden for these failures is that trust and risk-taking ability on the global platform comes under a question mark. Financial institutions might not back the upcoming growth opportunities and diversification of business would come under regulatory approval in the long term. The back of license raj might erupt again.  More than the credit it’s the depth of loss which spills over in the long term decreases the Indian corporate stability in the near term.

DOES PASSIVE FUND MANAGEMENT IS NIGHTMARE?

Managing the passive investments is now going to be a nightmare for the global fund managers. Trade war and uncertainty about the global market arising from the same has kept a nightmare for the global fund management.  Pessimism about the global markets in the next 6 months to 12 months has kept the fund managers awake at night.  The long-term investments avenues continue to pour its trillions into the kitty of the investment pots without thinking about where the inflow will be invested. Contrarian investment strategies have now turned into a nightmare.  

 It’s true that accumulation of long-term portfolio happens during the worst time of the markets but when the time itself is going to be prolonged then the risk of investment amplifies at every lower level of the global markets.  According to some market reports the Money market funds were holding $2.84 trillion through July, an increase of 7.1 percent from the same point a year ago, according to the Investment Company Institute. Taxable bond mutual funds had assets of $3.46 trillion, a 12-month rise of 5.7 percent. The global markets are at tough times and hence every fall is an opportunity but that opportunity itself is now turning to be a nightmare since the fall is going to be steep keeping the global macros in mind.

The biggest challenge for the fund managers across the globe is that they cannot hold in cash and they have to deploy after a certain level of cash levels increases to comply with the regulatory aspect. Now falling market has every time new low levels and this investment deploy increases the risk at ever new level created.  Inflows will dry with falling market to match the sentiments but it will not dry down. Further when redemption pressure would amplify when global markets go for a toss then the risk of selling quality stocks and scripts comes into play which further amplifies the problem for the fund managers. Passive investments which are benchmark linked would face stiff tough times as global market outlook looks pretty scared with ongoing global macro factors.  If the broader market goes for wild swing then investing in passive would be a nightmare since ever new low will erode the capital invested at the earlier low.

If we look at the global market we find that the September ‘Global Fund Manager Survey’ had 244 respondents with $742 billion in assets under management. The Bank of America Merrill Lynch (BoAML) fund manager survey, which is published each month, found the percentage of fund managers that expect the global economy to slow down in the next year had jumped from 7% in August to 24% in September. On the other hand, cash balances climbed just one percentage point to 51% between August and September, BoAML said this level was an 18-month high.

Apart from trade war China slowdown, Winding up of QE, Credit Crisis, Brexit has kept the fund managers awake at night since all these events are having a global impact on the different asset class. Any credit downgrade of an economy or company can create a contagion call on the investments.  When cheap money is being pulled back and currency volatility intensifies the risk of credit slippage just a part of the game.

Rebalancing also seems to be a difficult task since for rebalancing one needs another asset class.  Debt market yields are another shock due to a trade war and currency volatility.  The rebalancing stands out to be another herculean task at these turbulent outlooks of the global macro makes every asset class to have a downfall.

Cash is king but in the hands of the investor alone. But doe this means that the periodically auto investments should be called off the answer is left for the global fund managers and not to an economist. Investing in passive is tough a job now as global complicacy intensifies.

ANUP JALOTA...WHY SO MUCH FUSS. HE HAS SHOWN PATH

Anup Jalota has become the new session of the Indian stardom where he is at both ends of controversy as well as inspiration for the who are underestimated after the age of 50 or 60. The concept of being treated as old haggard after the age of 50 needs relook now. I have been hearing everywhere that Anup Jalota used to be a father like a figure and how a person like him who used to sing Bhajans can have a life like this and with lots of funny jokes in WhatsApp and Facebook and other social networking places. Well, don't have to find father within Anup Jalota or anyone else, better take care of  your old age father who is kept like an old furniture in your home or neighbors house.

 Thanks to all of them that they have revived and increased the TRP of the programme and also of Anup Jalota. I am a little worried about how the whole of India has been reacting to the same. I find  Anup Jalota passing a lesson to all those who are being taken as old haggard as Gold Mines. The beginning of life has no age. We Indians are always half western and half primitive. The problem is that we are nowhere 100% committed to any lifestyle. Does anyone think about others who are left alone in life after a certain age? If old age home is the place for them then it's better to begin life again.

My 1^st point is that after this disclosure will everyone stop listening Anup Jalota Bhajans. Well, how Many of us have real time to listen to Bhajan. Prior to coming in front of Public with this type of lifestyle how many people have thought about Anup Jalota. How many teenagers and new generation people knew about Anup Jalota. Well we know that we have very short memory at the same time we hardly remember these type of people like Anup Jalota. We hear numerous times songs of Arijit, Atif Aslam etc but do we ever remember or respect to these singers who have raised the bar of Bhajan to such an attitude which cannot be touched by anyone.   

Anup Jalota has a personal life of him. Singing is his profession and he masters in singing Bhajan. Hence kindly don’t mingle his personal and professional life.  If you say that both the life have a relationship then please stop casting vote against all those MP’s who are corrupt and have a criminal background.  You cannot have a cake and eat it two.  Every person at whatever age he is has some life of how own. This message is well clear and ice breaking lesson for those who think life is over.  Duties and responsibilities are at their place and once they are over every person is free.  The freedom does not come with age but with a sense of the dynamics of life pattern.

What is troubling the people who are throwing pots and pans to Anup Jalota for his current lifestyle? Do these people have loved that this old veteran famous Bhajan singer was starving to death? Would it have been fine for these people that Anup Jalota was begging on street and all of you are taking selfie with him and sharing his current begging status on FB and whats app?   Do you all want to share his poor begging life story as masala with your morning cup of tea? Well all those who are throwing pots and pans on him need to check in how they have kept their won parents. I have seen in many families that at the 60 or 65 these families keep their parents just a old furniture.  I don’t need to accentuate on these aspects since you all know your neighbors very well.  

You are all surprised and now feeling jealous that life can begin at any point in time. There are ups and downs in life and one has to fight back to get that position in life.

Anup Jalota life is just a part of this new budding generation. Wait by generation I am not marking only the ones who are within the age bracket of 16 to 30. Well, who told these age people that this modern world only belongs to them and only they can have shorts and Bermuda with red shoes and dangling jacket.  This new generation belongs to everyone.  As you have rights to wear and behave and live as per the modern world rules why not a 50 to 65 aged person.

 We easily adapt to western culture not only with a dress but with living style and even replacing marriage with living in relationship. Well, a person aged 50 to 65 can even get into live a relationship. It's his choice and his way of thinking just like the way of thinking you have not got into marriage and just have a relationship. We love western foods, we love western lifestyle, we love western products then why it's being restricted or ignored or not appropriate for a person of 65 years.

In foreign countries or you so-called western life, there is no such age bar of not having any relationship. A relationship is a decision between two appropriate matured people. Where the whole world does come in between them.

I a country like India parents are neglected and the situation becomes more painful when one of the partners passes away and the other one is left at the mercy of God. This so-called young generation does not have time for family and hence they take their parents as a burden.

Well, a relationship has its own importance varying from person to person hence better not to argue on that part with a limited capacity of understating the depth of the subject. I am not able to understand where the people are having a problem with the current status of Anup Jalota. Many pundits of the society who are white-haired would say that this is against the laws of the society and they will drive the society towards the ill path.

Well for them I have few things to ask and I can challenge none of them will have the strength in the balls to say revert on the same. These white-haired pandits of the society – are you all able to stop rape. Does the society of white-haired people have developed the courage of accepting raped girl? Does this society is able to stop child marriage and dowry? Well is these people are able to bring down the brothels where human trafficking live examples are pointed out clearly.

We don’t know about the life background of Anup Jalota except what we read as gossips in print media. We don’t have any rights to criticize the person for his current status. He is a part of the modern world which is half western and half primitive. Yes, primitive we are since there are many things in society which have been developed for the benefit of certain people of the society and not on the large scale.

I remember a story where I went for an event in a school for a financial planning course and I was explaining to them what is the difference between asset and liability. After the programme came to an end one of the class boys came and asked me is my grandfather is a liability or an asset. Do you still think that all aged person between 50 to 65 should pray for death as their own one ’s have forgotten them and have left them at the mercy.

CAREER DOLDRUMS....WILL A COURSE SURVIVE ME

I have found that human force always runs on the wheel of the fear factor. The fear of not getting a job, fear of losing job and fear of not getting promoted fear of stability lives within the people which drives them for any professional course.  The point is that education has been linked with pay cheques and long-term sustainable career growth vision either never existed or they are short-lived. Today my article speaks about a few of the observation I had with students who were doing some professional courses.

Executive MBA one of the most demanding courses for a working professional who has corporate experience of around 2 to 5 years and is looking ahead for some course to give more shape to their career. This market has huge demand since most of the early education was not stable due to various factors and after some stability in the job, they look to get into some good education qualification so as to get a pay hike and more stability.

Well pay hike remains the prime focus for joining these courses rather focusing on the actual knowledge-based approach where one will add value to the organization.  I have witnessed in many places students change their preference for selected specialization subject changes as they go through the classes. Doing a work and study balance is significant activity and hence most of them change the subject just to get the degree and not becoming a master in the subject.

The change of subject and specialization is not always for a better degree or knowledge achievement but more driven by where I will get more pay hike remains the key factor.  Linking the salary growth with education simply limits the area of focus. One needs to have a broader vision for education and knowledge since the changing dynamics of the global economy and Indian economy keeps nothing unchanged even for a limited period of time.

An educational degree should be always linked with the long-term vision of one’s life and not influenced by the current state of influential factors. The problem is within the Indian mindset where every education is linked with job and pay scale.  Even in skill development, I find that the key focus is getting a job and let the rest of knowledge gaining come to an end.   Technology is also changing the dynamics of skill development and hence one needs to be with an academic touch over the length of the career.

Career is not for 5 years or 10 years time frame. It spans over a period of 30 to 40 years and hence one needs to understand the dynamics of changes in job life. Doing MBA and getting into a job and securing a position –well all these are myths as on today. Nothing is permanent and hence continuous learning is the only survival lifeboat.

Once a good job or hike in pay scale is achieved the course is forgotten and the studies are winded up. This mindset leads to the slow growth of fear factor within the people that one fine day they will lose a job. The fear of losing a job creates many repulsive activities which are less knowledgeable and more diplomatic in nature.  

I further find that often courses are chosen by one based out of others view and less on one’s own understanding. This is another grey area where I find the change of courses happens when one gets enrolled in one course and finds the subject to be beyond his limits. In many cases, one changes the course since they just want to get the tag of MBA just beside their CV to uplift there pay scale.

Candidates lack vision for their career and this lack of vision leads to more problem where series of job changes comes into play. Courses should be chosen with deep insight about where one finds the position to grow in the next 10 to 15 years. Further doing one course will not be sufficed to live the life. With changing times periodic courses needs to be adopted.

CHINA WILL INJECT LIQUIDITY....BUBBLE IN MAKING

Well I am not much concerned about the Trade war but more about the domino effect on Chinese economy which might become worldwide carnage. The Tariff domino effect is back and this will again create volatility across the Globe and markets will again go for a roller coaster ride. The U.S will put 10% s tariffs on a $200 billion in Chinese goods, which will go up to 25 percent at the end of the year. These new tariff will create massive blow to the global trade and manufacturing and the biggest point to be noticed is that there is no end of the same as per the statement from U.S President as he plans to make the total amount to scale beyond $300 billion.

There will be further tariff in the long term. Currency volatility and China currency devaluation strategies would be coming back. Further I would not be surprised to witness that China comes up with further stimulus to keep its economy afloat. In fact logically it is expected that china soon will come up with relaxation of funding  guidelines so that liquidity is kept alive. Many of friends would argue that china does not have such room keeping the debt to GDP number in mind. Well, I beg to differ with them and I am confident that China will inject liquidity massively.

China has enough ammunition to keep its economy going ahead but the tariff affect on the global economy cannot be ruled out. It’s true that the Chinese economy has 260% Debt to GDP but they will prefer to go further to save their economy from slowdown of manufacturing which will impact their GDP. Lending ropes will be eased by china soon across all verticals so that the supply of liquidity keeps the economy alive. Remember if they don’t go for any liquidity measures then this deficit will impact the Chinese economy in a broader way.

Well as said in the beginning that I am more concerned about the Chinese stock market rather that the stock market china. Any massive fall in the Chinese stock market will be carnage for the Chinese financial system and also for the Asian economy. Chinese companies’ use of their stock as collateral for loans. Chinese financial institutions had nearly $220 billion in such loans at the end of July. The contagion call will massive trigger. China is already looking ahead for buyback of shares to keep the debt market afloat and to save from any carnage.

Till now in 2018 more than 700 Chinese firms, which turns out to be 20 percent of actively traded stocks, has announced plans to spend money on their own shares.  The 24 billion yuan ($3.5 billion) have been deployed. This number will grow more in the coming days due to the ongoing trade war which will impact the profitability of the Chinese company which will lead to fall down in the stock price. Now if stock process goes for a toss then these banks and financial institution loans would be under intense threat.  

Short term loans are the biggest risk as of now which will get more intensified as these new tariffs comes into effect. In China, 22% of listed companies have at least 30 percent of their shares pledged as short-term loans. In the second half, a staggering 1 trillion yuan of share-pledged loans will be due.  Hence its proves that Refinancing activities within the Chinese economy will begin faster to save the economy from any collapse which gets reflected in the stock market. Anyone default within Chinese company would spook a massive fire for the stock market and economic weakness will be exposed.

China will come up with more steps to create the bubble so much that not only Asian economy but the whole global. China is on a massive risky level. Asset bubbles would create major blow the day it's beyond manipulation.

IS GLOBAL PASSIVE COMES TO AN END...HYBRID IS NEXT ?

The current Bull market has been one of the lengthiest bull markets of the History. We all know that time somehow is getting ready for some cool off for the Bull. Well, whatever goes up has to come down. The market is too much fatty and it needs to shed its fat.  The market has been fuelled with huge amount of cheap money.  Autopilot fund management is coming to an end based on the current various statistics across the global market.   Genius fund management era got destroyed in 2008 and hence Passive fund management grew up like anything. The reason being that smartness of fund managers get defeated when economic theories keep changing. Smartness is short-lived hence without much experiment the investment flowed into passive funds.  All the stimulus and zero interest rate monetary policy came up at the back of buyback of shares and nothing towards long-term sustainable business or assets.

The recent hunger for the same is revealed through the U.S. investors has plowed money into U.S. stock exchange-traded funds at a rate of almost $12 billion a month since the start of 2017.  This number is 5 times as much as seven years ago.  On the other had Vanguard, State Street, and BlackRock, which manage 80 percent of the $2.8 trillion invested in U.S. stock ETFs. This speaks about the hunger for the growth of ETF matching with the growth of the S&P 500 in the last 9 years.

The index funds have been the most favored since 2009 when the markets were giving return to the tune of 20% annualized. Well, these days are over currently under the regime of rising interest rates and trade war and overstretched valuation gaps.  On the other hand, the Hedge Fund Industry picture is not rosy enough for the long term. Hedge funds recorded quarterly outflows of $1.2bn in Q1 2018, ending a streak of five consecutive quarterly inflows.

In my research, I find that in the coming days as equity markets growth will not be repeated as historical numbers have been and at the same time as hedging opportunities are coming down I find Balanced Funds or Hybrid Funds opportunities will be opening up in the Global Markets in the coming days. The global market would come up with Balanced Funds as passive funds are tired. The current market does not support passive funds in the long term. All the momentum of 20% annualized growth has a slowdown and the ongoing trade war followed with a slowdown in manufacturing due to the former would spook huge bottlenecks for the market to grow from here.  Investors will look for safer products where equity markets don’t perform and this is the key place where balance funds or Hybrid funds come into place.

The mixture of Debt and Equity followed with currency spice into the products would drive the next level of Balanced Funds.  Debt to Equity shift and including currency or Gold into the same would diversify the risk and will help to balance the same.  No Fund Manager would be required in these cases since it would be a higher version of passive fund management based on macro factors again. No smartness like the Pre 2008 alpha generation focused funds.  Hence this segment would get significant growth in comings days. Across the globe, we would find these type of products being launched and will witness the shift of investments in these products.

Another grey area which will get affected is the exit point for the Private Equity investments.   As returns will not have exponential growth, long-term exits will come back and new investments will be short-lived.  New products will be the next bet for the global financial system. The back of Genius would come back again.

The S&P 500 valuation gap due to a tax cut down and other segments is too wide enough and they are slowly getting discounted as story making days are getting over. A fixed formation is the most important requirement for long-term sustainable economic growth.  Smartness is all set to come back. Debt market looks good a currently as credit squeeze comes up through interest rates other sources of debt would grow significantly. This will lead to the growth of many segments of debt papers giving an opportunity for getting the pool of investments to shift from equity to debt. Balanced Funds or Hybrid Funds would be highly in demand.   Passive fund management is all set to face decline compared to historic performance which made them grow exponentially.

YOUR AUDIT REPORT...STACKED IN STORAGE ROOM...

It has been heard for a long time that certain professional bodies were fighting and sending huge number of research papers to the government of India for getting into concurrent audit or statutory audit. They were fighting to get the recognition into the banking industry. Well many members of those bodies who propagated the same into different professional and management bodies   got higher promotion due to raising blindly the voice for the same under the tag line of Professional Development. Well the current statistic of the banking industry reflects that even a delayed or half penetration into the Indian banking audit system has saved them to be part of the major fraud and corrupt process of the Indian Banking Industry.  Well No audit system can help when the whole system is under the influence of bureaucrats. Your audit reports are just stacked in the cupboard of the storage room.  The auditor was happy that he got many audits of many banks and he got his payment and just simply met his responsibilities as prescribed and governed according to the books. There will be many audit reports which might have triggered the alarm but no one read or their reports were tweaked under pressure. The game of bureaucrats.

It is true that most of NPA happens due to political, corporate failures, policy bottlenecks and wrong business strategy.  But the recent few cases of the banking industry raises the voice that in many instances deliberate steps and actions were taken to take advantage of the loopholes of the system.

Concurrent Audit or statutory audit any fraud detection process would fail when the target is deliberate collapse of the bank. The level of corruption has created new history and its being found that the trust level even on the top honchos is a matter of question as of now.  One of the key points to notice is that the performing banks are losing their position and their values are getting drained.  The long term growth and brand is at high stake and almost on the verge of collapse. Exponential growth achieved on short term decision making ,just to make name in market and increase the shareholders returns in the short term are few of the objectives which has lead to a phenomenal growth of few banks in the last decade.

Exploitation of resources have been one of the key burden on the Indian economy as banking industries foul play of loan restructuring  and cooked valuation papers game came into play. Often an economic slowdown for a prolonged period happens due to wrong allocation of resources. Overleveraging a certain segment of bureaucrats would lead to loss for others. Funding gets dried up, banks gets stringent in terms of doable projects and hence the slowdown has a repulsive effect on the whole economy.

 Corporate governance and ethics is now under a big threat even from the top management. The Banking industry is under the threat of competition where a collapse of one bank might lead to mergers growth resulting eradication of competition for the competitors. No auditing system can develop corporate governance and ethics levels when the objective of making NPA is beyond the calculation of theory based objective.

 In many cases one might find historically that across the globe many banks might have come under the threat of collapse due to sharp criminal mind of getting the performing bank into a nonperforming. Faster growth is often being driven to the wrong path so that the monopoly of business is created.

Auditing levels are bound to collapse when the process of hiding is designed by the few greatest minds of the financial industry. When the promotion of the PSU banking segment is linked with politics then NPA are bound to happen. Corporate ethics and governance come nowhere when one political figures play the dice. Indian banking industry needs advanced technology so that the fraud detection is triggered before the fraud converts into a long-term loss. In the last couple of years, the way the Banking Industry has been flooded with re-capitalization speaks enough for the depth of fraud and they mindset of the players who have taken this act as simple play.  The below-mentioned data speaks about the last 10 years recapitalization and the failure of the audit system.

These are all taxpayers money which has been siphoned into the pockets of the corporation making them wealthier and into the pockets of election funding.  The Indian audit system needs to be changed now since traditional practices are not able to catch the technology-driven platform of corruption. The loopholes are being identified so finely that audit system is bound to collapse. The economic impact of the re-capitalization is on the fiscal and other segments of the economy where resources get squeezed and the suffering is passed to some other segment.

The failure of the banking industry gives birth to new business vertical in the corporate funding which is often designed like Ponzi scheme –taking money from people and showcasing for investments.  Private investments look for an opportunity to take advantage as bank lending declines. This might be a nexus of the industry played by top honchos. The high level of corruption in Indian banking system has led its roots so deep that even to catch the big cats the whales might come out of the bag. This is a risky proposition to get the culprits under the ambit of law.

To get the Banking industry on track we need punishment for the professionals who are involved so that the taxpayers and recurrence of the same is stopped. The fear of punishment would only get back the corporate governance and ethics back to its level. If the people involved in corruption should not be let free due to a time delay in getting justice nor due to any legal loophole.

The use of advanced technology as an audit system in the Banking industry would give immense identification of patterns and would raise red flag before a particular deal gets through. The advance detection of leverage deals and manipulative corporate funding would get caught which will create a fear among the bankers that me might get caught.  The entire segment of loan management and credit score system should be linked to the AI, Big data and Block chain technology.  Well where humans fails to learn corporate governance, at least technology might help to get the corporate ethics and governance back into the humans.

AI would amplify the speed of identifying the patterns and anomalies in massive data sets, more value comes from investigating and deducing the reasons behind the pattern or the anomaly.  The audit system needs to upgrade and built the various permutation and combination of financial audit aspects and take the matter forward for building a technology-driven audit system. 

CASH BACK OFFER AND THE BUBBLE

We have seen many tech bubbles but we need to understand the recipe for the same and also the upcoming tech bubble in India.  Under penetration have been accentuated with huge growth outlook but the focus have been extensively towards urban and the real population at rural is yet to be focused. The growth of cash back based various apps and their business has now become the fashion of the Tech Industry linked with service. 

This bubble is so big that generating ROI for the long term is a herculean task.  Every service linked app has some cash back offer to attract the consumer at their own end. The completion is so high that Private Equity investors have become blind since they believe that once the data comes into their platform multiple business opportunities can be explored. Well, that’s a fallacy since consumer behavior does not want any shackles and hence it’s a free bird. Private equity is the biggest segment which is at risk from these bubbles.

 Cash Back based purchase is just a mouth-watering marketing tool extensively used for marketing. Free things are a temptation which provokes purchasing even beyond one’s capacity. Cashback is now competition to attract user in one's platform and create a new business model based on drainage of capital.  Users once addicted to free things are always in quest for new offerings. The offering is a never-ending game and hence cash flow based marketing is also a never-ending game.

Business fails to understand that cash back based approach is dependent on Human behavior where once a free approach leads to significant growth in getting consumers initially the human behavior later on shifts the same clients to some other free back offers.                                                                  

For making online payments the consumers have been given cash back to gather the customer data. That same customer data is being utilized for making other products or business verticals. The cost of acquisition will only find justification when those business verticals generate enough cash flow. But the investments made by various PE firms bleeds when the economic scenario does not support the other verticals. Cash back often is being found a bleed of cash for the Private Equity segment.

One of the most common segments where the flood of the new business verticals are pouring into is financial distribution business or advisory business. App based platforms or web based platforms are being opened up by these companies to leverage the data base of the consumers being created through the door of cash back. Now the competition is so much and expertise levels are so high that consumers are now in dilemma to decide where to go.  Everyone has come up with something of the other to leverage on the consumer data. The biggest threat to this type of business models is that when one divert from the core or joins the cash back or payment bank system glaring at the success of the other, the pain of loss is huge. Once the Private Equity segment hits the bumper the slowdown and end of all future driven innovative platforms comes under a question mark.

 I don’t need to name any company as my readers knows much better about the various type of payment platforms and other cash back platforms are available to lure them for  being a client. The day the bleeding of cash would come down the most interesting part would to be to watch out how these companies or payments systems survives during those tough times. Consumer behavior is fragile and can change at any point of time and these changes the dynamics of the business model based on which the initial seed funding was invested.

 The biggest threat is for the Private Equity Segment that they have invested with a long term perspective built with the growth of so many same business models leads to bleak opportunity growth for these businesses to grow into sustainable long term business. Valuations of these companies are made up of a story with bleak long term revenue generation.

The problem is a huge amount of resources are chasing the same industry and this where the disparity of the investments comes into play. Very soon many Service based technological apps will be clubbed together and very few will survive.   From Tourisms to food service industry so many options have come up with huge Private Equity Investments chasing minimum resources with too much capital creates a loss opportunity for the other industries since in a country like a herd mind set is being followed in terms of every subject.

I am scared of these freebies based business opportunity. The problem is in the initial stage when the seed of thought is implanted for these companies and business opportunities.  We need innovation and not copy cat based business model with little tweaks and turns. The real growth of ROI will come when business models are based on innovative products and services.

Traditional Audit Failure....in Banking...Adoption of New is Required -SERIES 1

The recession of 2008 has failed to teach the lesson of corporate governance and the high level of ethics required in the banking industry.  The recent cases in Indian Banking system give immense justification of the same. The roots of frauds have shaken the faith from every tom dick and harry of the banking industry. Valuation of companies are just a fake game and no professional like Chartered Accountants or cost accountants can help to reduce the same despite of several souvenirs released by various professional bodies across the globe and not restricted to India alone. 

 No professional governing bodies can stop political or another type of external influence on the banking industry official. Neither any type of audit can help in this type of influenced based decision making. The Indian, as well as the global auditing system, has failed due to the traditional modes of audit and more due to the influence of humans more in the critical decision-making process. Cooking of papers are fees based approach run by professional bodies and consultants and escape plans are designed in advance for the corporate before even they go for default.  Traditional audit approach and several levels of audits are just failed detection with these growing numbers of fraud cases.

Recently Indian economy has been celebrating the implementation of NCLT as they will resolve and take action s against the defaulters, well the smile is short lived since in every democratic country all decisions are influenced by the political mindset and hence many loopholes which have been plugged now can be re-opened later. NCLT approach itself one fine day will be made lenient so that again fresh NPA could be created and the loopholes in the industry could be exploited.

Credit rating is changing at a faster pace as dynamics of the industry is changing with the advancement of technology. Hence central banks need to keep an eye on the same.

I have heard many such events where a high level of a presentation by Industry heads have raised voice about ethics and corporate governance and strategies for controlling and managing the rising NPA issue but all have failed miserably. The reason behind the failure is the hunger for making windfall money at the cost of the society. The global banking system might be waiting for another round of collapse from the same leveraged corporate valuation and fancy strategies of making valuation to be astronomical.

Valuation of the corporate for bank funding is influenced by political backup and banking official merged capacities.  Human influence is a major factor in the failure of all these policies. Cooked valuations cannot be replicated through ethics and corporate governance principles. The constant failure of the banking industry across the globe raises the voice very clearly that human behavior cannot be changed even after 3 days session organized by various professional bodies.

The biggest threat of these banking – corporate frauds is that the needy corporate like the SME don’t get loans for expansion when they need the funding. This leads to the shifting of business opportunities to other countries.  Indian banking industries have been a live example of this type of instances in a recent couple of years. It’s a high time that advanced technologies need to be adopted in the banking industry.

AI, Big data analytics adoption followed with Block-chain would help a lot to detect the gaps in corporate governance and unethical practices before they create a contagion collapse. Cost Audit and Concurrent Audit and various another type of filtration process are traditional keeping the mounting gap of corporate ethics. In this segment, AI and Big data will help to detect the corporate valuation gaps and over-leveraged books of accounts preparation. Big data analytics needs to be linked with every historical data either at the external level or internal level of the company so that the lender can get a clear picture of the leveraged details if any present. This will beneficial for those who are genuine in real terms and are very obedient in the financial management. This process will give credit to good corporate and will enhance every angle of the corporate governance. Blockchain would add value to the prudent decision making where negligible human interference would further enhance the corporate ethics and corporate governance. The biggest achievement through AI, Block Chain and Big data would be that political influence on the banking industry would come down significantly. Analytics will govern the banking industry and not any political influence.

AI and Block-chain can be used to detect cooked financial papers and detect early warning before any default happens. Corporate Governance and ethics can only be improved through efficient implementation of advanced technology.

The new mode of the audit is adoption, implementation, and understanding of AI, Big data and Block –Chain in the banking industry. The traditional audit mechanism has failed miserably and hence there is no time to waste for late adoption of new advanced technology based audit system.

It has been found many times that Banking officials want to maintain a high level of corporate governance and ethics but external influence creates distortion. In this place I find AI, Big data and Block-chain would be the biggest gift to these officials.

 When a loan file come up the system of credit rating needs to replaced with Humans. They need AI and Big data to derive from the rating and feasibility of proving to fund to the same. The parameters for the credit rating and understanding the feasibility of providing loan and detecting how much the books of accounts are cooked needs to enhance by the central banks of every country. This will lead to a better outcome for providing loans to the corporate. Central Banks needs to uplift the bar of corporate governance and ethics and integrate the same in AI and Blockchain so that credit rating improves with changing dynamics of the industry.

 Big Data would help to identify the various dynamic changes of a business or industry and figuring out the upcoming changes so that the pattern of ratings to could be identified.  The only thing the banking industry will need is people to understand these types of outcomes. AI would be many influencers where the pattern could be well reflected into an outcome.

 Advanced technologies should create a sense of alarm within the hearts of willful defaulters and political influencer since social media is linked with every footstep. In my next series, I will throw light on how NCLT needs to get into merger and acquisition decision-making process.