Post pandemic the role of the management accountants will
change significantly and will demand new levels of maturity and approach
towards strategic cost management. The management accountant
profession has now changed significantly during and post-pandemic. The
practising profession is at its worst provided as long as we catch up with a
traditional model of practices. The job of the management accountants also demands new perspectives from the strategic cost management point hence one needs to understand the sea of changes. Hard truth but can't close your eyes
when the sun is bright. The strategic cost management is going to get a significant
heads-up post this pandemic for India.
Sunday, June 13, 2021
Saturday, June 12, 2021
INDIAN BANKS STRONG ENOUGH FOR SHAREHOLDERS & FOR GDP GROWTH
The
Indian banking sectors is very strongly positioned to reap the gains of the
Indian economic growth for the next 2 to 4 years. The biggest
contributors to the Nifty will bring significant revenue, profitability and
growth from the inclusiveness of the Indian economy. We have split
the contribution into verticals one through internal improvisation numbers and
rationales behind the sector and 2ndly through the digital medium. The large
NBFC market is also going to be a key contributor to the sector. The
margin of safety for the Banking industry has changed dramatically giving one
of the strongest positions to the industry. The revolution in business process
and current strong position followed with the strong recovery through NCLT
makes the sector one of the strongest banking sector across the globe.
If we
recapitulate we find that the twin balance sheet” problem, high leverage at
firms and high non-performing assets (NPAs) at banks both have been brought
down from the leveraged position. The biggest gift to the Banking Industry is by
the corporate being able to service the debt. This debt serviceability is a
major factor for the sector to grow and keep NPA levels at a low level since
NCLT is acting as a guard to the taxpayer’s money. As per RBI Indian banks,
today boast of capital adequacy of
15.9
per cent on the average, although the average at public sector banks is lower
at 13.5 per cent. (The minimum requirement is 10.875 per cent and is poised to
rise to 11.5 per cent in October).
NPAs at banks were 6.8 per cent of advances in December 2020, way below the peak of 11.2 per cent in 2017-18. This level of improvisation reflects the sector's contribution to the returns to the equity shareholders and also towards the economy. The banking industry CASA ratio speaks enough for the Industry’s current strength.
At the same time rural economic growth followed by a slowdown in consumption is going to spook the demand for capital for the MSME sector. Large companies are well placed with liquidity and bringing down the debt levels have been much easier in this pandemic as unnecessary cost was eliminated hence servicing the debts and bringing down the debt levels have been a very powerful act by the corporate.
If we want to identify the
areas of banking credit growth then we need highlight on the credit degrowth
industries from where the new credit demands will arise:
Petroleum, coal products and nuclear fuels de-grew
4.6% YoY (lowest YoY growth in 15 months).
Certain sectors such as metals (-6.2% YoY), construction (-1.7%
YoY), all engineering including electronics (-6.3% YoY) saw persistent YoY
de-growth.
Chemicals and chemical products (overall) continued to
de-grow at 7.9% YoY (however, it was up 4.3% MoM).
Infrastructure
grew at 3.6% YoY, after consistently reporting negative growth (de-growth)
since Oct-20.
This trend
was led by growth in credit for roads (34.4% YoY/17.9% MoM). Credit to the
telecom segment witnessed a 25.7% MoM (4.6% in Feb) growth. However, this
segment witnessed -21.3% YoY growth (-36.3% in Feb).
Now let’s
comes to the Digital avenue source for the Industry to grow. The
fintech industry has been growing stupendously. The same
growth will now be captured by the banks since fin-techs are now the target of
banks. Banks are expanding their business capabilities through collaborating
with fintech and reducing their operating cost and enhancing the business
reach. Banks are using fintech arms of AI, ML, SaaS and converting the banking
platforms as PaaS (Platform as service). Banks internal source for creating and
using such fintech platforms is a cumbersome and timing consuming
affair. The best way is to buy out fintech platforms and make the
revolution for the banking industry.
The the banking industry will use these plug and play fintech platforms to grow
their business and create new servicing strategies. The API
integration mechanism helps banks to create new markets and reach new
customers. Understanding and growing the intrinsic value of the customer
is the key for any industry to grow. Now fintech platforms and the tools of
AI,ML, SaaS helps to understand the abilities of the customer and take the
products and service accordingly.
For example
the ‘buy now and pay later model is going to play stupendous growth for the
consumption industry for the unbanked and underserved population of India not
covered previously by banks and NBFC. The whole consumption market will be
changed felicitated by the Banks and Fintech collaborative practices and
strategies.
The
model in the play between banking and fin-techs is that the model that is
prevalent is the risk-backed model. Banks are willing to take 100 per cent
exposure on their balance sheet. They do it because of the risk of comfort from
the partnership. Under the agreement, Fintech bears the first 10 per cent of
the loss, or if the loans go bad beyond a specific time, it buys it from the
bank.
Personal
loans on Google Pay which includes banks like HDFC Bank, ICICI Bank and Kotak
Mahindra Bank. This model is now going to spread like
wildfire in other fintech too. Hence the lending and payment industry is going
to bring a revolution for the banking business to use big data.
The collaboration between banks and fin-techs will play a big role in the Indian financial market and GDP growth. The current banking stress is under very much control and an immediate spike does not seem to be under the radar as long as NCLT keeps in action mode. The Banking industry is poised to create significant growth for market and equity shareholders.
Monday, June 7, 2021
ITS TIME FOR MID & SMALL CAPS WITH BLEND OF LARGE
The markets are scaling new highs and every investor is
confused about its investments. The debate is between pulling out funds or
investment funds into the markets. The large-cap, mid & small cap debate is
another subject that keeps investors under confusion. In the month of May 2021, Sensex gained
around 6.61 %, recording the sharpest May. The Sensex, for instance, currently
rules at 32x the price-earnings multiple — 25 per cent higher than 25.5x PE
multiple of the world’s best-known index, the Dow Jones Industrial Average. The
Sensex is also the most expensive in Asia, almost twice as expensive as the
Shanghai Stock Exchange. One of the biggest questions in mind is when the
markets will fall? Well, market may fall or may not but sector-rotation
possibilities are high now and this will be growing significantly in the coming
days. Contra sectors will attract inflows hence some portfolio might get
redemption but the flow will be back again into other sectors.
Friday, June 4, 2021
B2B FINANCIAL DISTRIBUTION INDUSTRY AWAITS FOR STUPENDOUS GROWTH
The Indian B2B Distribution market is going to see a change this year and in the coming years. Yes, we are hammering on the word of B2B predominately since this market in the financial world is now going to be a big market now. The 3rd party distribution market is going to witness significant growth and the most interesting thing will be to find out who grabs the major share and become the next B2B king.
The B2B business model will find significant growth in the coming months and years. Particularly Fy-22 will find see change. The industry of 3rd party product distribution where Mutual Funds, Fixed Deposits, capital gain Bonds, Life Insurance and General Insurance will find new heights of growth and opportunity.
In the last couple of years, we have found that many midsized distribution companies went out of the industry as the revenues and scope of the market was not so lucrative. In fact, last 2 years mostly servicing have been the mainstream compared to business. ManyB2B models were exiting the 3rd party product distribution models and were focusing on B2C. Falling margins forced B2C headcounts to be reduced at the same time running the business and scaling despite online facility in various products have been a challenge.
But covid has changed the rules of the game and the whole perspective of B2B model. The pandemic 2nd wave has created and passed significant opportunity and knowledge. Loss of sole bread earner or loss of significant income due to treatment, loss of, loss of jobs are all the reasons behind the stupendous opportunity of B2B market. Many new brokers/agents/advisors are now going to come to earn and make a living now. The B2B is a profession that is going to make earnings for many people post this covid 2nd wave. The opportunity for these people who have lost in various segment of life is that they will get the financial distribution industry ready to adopt and train them quickly. Further pandemic lessons can be utilised judiciously for making new sunrise for the B2B Financial Distribution Industry. Technology platform along with hunger will play a transformation for the Industry. Its time for investments in B2B vertical. Its time to keep your arms and ammunition ready to facilitate the growth of the B2B new players.
In the last year most of the 3rd party product distribution platforms of B2B segment focusing on the Insurance vertical. High revenues and significant awareness lead to the growth of focus. The 2nd wave has simply amplified the prospects of the B2B distribution platform. The Ties 2 and 3 cities are going to find the new breed of agents/advisors/brokers in these 3rd party product distribution models. Rural India will find a significant number of newcomers in this B2B profession after learning the lessons of a pandemic.
Lack of Insurance in the 2nd wave has created the demand for the product. Plain vanilla term policy benefits arising out of covid -19 2nd wave is going to create demand for the product. Efficient financial planning, contingency planning and asset management increase the demand for financial advisory. The awareness of financial management and Insurance products has scaled to new heights which will come in real numbers post the 2nd wave. Those who had health or term insurance know the benefit of the same and those who never brought the products are now the new buyers.
Many new General Insurance and Life Insurance agents will join the industry. The insurance segment of POS and B2B is going to find stupendous growth in the coming days. This will help the distribution industry of Insurance to grow as well as the penetration level of Insurance products will increase. Term and health are not only going to dominate the segment but other insurance products like Group medical Insurance, Housing society Insurance, Property Insurance, liability insurance etc are equally going to find significant market growth in coming days.
Once the interest rate market starts climbing up and god forbid if there is any Franklin Mutual Fund type of cases or any corporate defaults then the corporate FD market will find huge growth. We have seen in the past how the industry has attracted inflows in corporate FDs. Last two years the FD market has been silent which is going to grow in the coming quarters.
Financial planning and contingency planning has now become a significant topic. Many new mutual Fund IFA’s will be joining the Industry. In this pandemic, many Industry veterans who have left the industry might be opening up the advisory vertical which is going to be another big business for the B2B industry. It’s going to be big competition among the companies who are into 3rd party B2B distribution to gain in size. Please note whoever strategies and handhold the newcomers they are going to replace the old ones.
INDIA SKILL LABOUR SHORTAGES TO INCOME INEQUALITY
Where are the labours? Who is going to run machines? India is going to face a skill problem for its GDP growth. The 2nd wave has created one of the highest income inequalities for India which currently is unexplored but will be having a cascading effect on the economy in the long run. The death has created more loss of income and more leftover pain of significant income inequality. Looking at the banking number of Gold Loan of SBI for Fy-21, we find that it has witnessed a 460% jump in gold loan. Well, the cumulative jump from the BFSI segment will be beyond 1000%. This number belongs to 1st wave and in the 2nd the wave we don’t how much gold have been pledged to buy oxygen cylinder, medicines from black-market and how to much to pay a bribe to get an oxygen ventilator bed. The unorganised loan market of pledging is still not accounted and further how many assets like house, land, business, shops have been pledged for getting few more hours to breathe.
We have been hearing that rural India is impacted significantly due to covid since the medical healthcare system is so weak. Well, the weakness is being compensated by selling assets so that better facility can be achieved in urban hospitals. Rural India has been impacted severely and this impact still remains unexplored in terms of correct numbers. We still don’t know how many children have lost their both parents and how many have lost their sole bread earner who used to pay the school fees. This segment of society is going to face one of the hardest brutalities of income inequality.
We will be getting more child labours and more crimes in a society where the fight for income inequality gets intensified. Indian economy may not face a shortage of labours but yes skilled labours crisis might be faced. Covid-19 2nd wave death has destroyed the middle class and below the middle class completely. The unemployed numbers of rural and urban are way above 25%. Well, the unskilled labour crisis is more since the skilled will get more job. The below numbers of the unemployment speaks loudly that it will take more than 2 years to get back to the pre-covid phase of salary and job growth. The stock market does not reflect the true story of the economy. The irony of life is that cost reduction at the cost of human labour boost profitability and increases shareholders wealth but does not bring down income inequality gaps.
The state-wise unemployment numbers further speak that how weak these states are in terms of providing better healthcare facility. The income inequality among the middle-class segment will bring a different prolonged mindset of working at lower wage just to survive life. Everyone does not work in a Fortune 500 company hence there is no point in doing any comparison of employment and salary hike numbers with the same.
Low penetration and neglected acceptance of health insurance have created a significant hole not only in the savings but also in the Credit card EMI and personal loan segments. These loans will indulge more assets to go ahead for liquidation just to repay them back. No moratorium can help here.
State-wise unemployment numbers speak that labour management is now going to be major issues and reverse migration probability is very high in these times. Indian economy does not have liquidity problems neither corporate India but labour crisis will teach biog lesson to corporate India for this time. India will need significant focus on skill development so that this income inequality can be bridged. The traditional syllabus of skill development will not be sufficient to create employment. Technology will play a critical role behind the new makeover of the society hence skill also needs to be based on technological advancements. This means that one needs to bring in low cost advanced technological courses and skill development programmes available free of cost to uplift the skill development to match the jobs being created.
Courses like coding, AI, Machine learning needs to be etc needs to be imparted free of cost through the government or PPP model where the CSR funds of the corporate can be used to create the next generation, education model. This model will help these poor families children’s to get this advanced technological knowledge for a better future in India. The fortune 500 companies of India, through the CSR model, can create these infrastructures for skill development. The best part of this model is that corporate real-life advancements are directly imparted through skill development courses to these young futures of India.
Technology is the only way through which this income inequality can be bridged at a much faster rate as compared to the historical roots of skill development. Start-up incubation hubs for this poor and middle-class segment will play a pivotal role in uplifting the Indian economic growth and bridging income inequality. Its high time for India to think and redesign the skill development process and model for pulling India out of this income inequality. You don't need subsidy and LPG connection you need skill development.
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