Tag: Views

Steer through volatility with Asset Allocation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As we forayed into 2018, Indian markets were scaling all-time high with the BSE Sensex breaching 36,400 levels. This unidirectional Bull Run led a majority of retail investors to believe that equities are a zero-risk asset class.

Suddenly, we saw flows to the tune of Rs 21,069 crore in January into Equity and Balanced Mutual Funds. While it was a good sign that investors took to equity investing, helping financialisation of household savings, it was worrying since it could also mean that investors had forgotten the meaning of the word ‘risk.’

Such that, investors started questioning the returns from debt as an asset class. Some thought equity markets had the potential to deliver sizeable gains in a month equivalent to what debt markets could provide in a year.

However, with nervousness emanating from both global as well as domestic factors, market sentiments turned. Recently, Sensex plunged over 3,000 points from its record high of 36,443 hit on January 29, 2018.

The recent fall in the market has been due to the fall in the global factor that has been gripped by news of the Trump-led administration all set to impose import duties for steel and aluminium. Another reason for the fall is due to the rise in bond yields in the US. With the US Fed increasing interest rates, there has been a flight to safety from global market, including emerging markets to the US. The global risk aversion has weighed heavy on the Indian market that had already discounted the positive news from higher Q3 GDP numbers for FY18 as well as the recent state election results.

With equity markets amidst volatile times, novice equity investors who were only witnessing the uptrend saw equities for what it really is.  Equities tend to be volatile in the short-term and investors are now taking cognisance of this risk.  This is a positive sign because such investors are likely to be more careful and think about investing in other asset classes as opposed to just equity markets.

In our view, the Indian market is expected to remain volatile. The run up in the market was on expectation of improved earnings growth, which still hasn’t picked-up. We expect earnings growth to catch up in the coming 12 to 18 months. While there may be tailwinds such as steady crude oil prices, supporting the Indian market, ultimately it’s the corporate earnings that needs to fire which would drive the Indian equity market higher. Until then the Indian equity market will take a cue from the global markets. In such a scenario, Indian market will continue to remain volatile.

By volatility we do not say markets are going to see a sharp correction, it will remain sideways. We expect earnings to catch up, which will be positive for the markets. However, the headwinds for the markets are the rise in US interest rates. Even if the corporate performance improves, any parallel rise in interest rates will not see any meaningful gains in the market.

In our view, both fixed income and equity markets will remain volatile. Volatility is a normal part of investing so investors shouldn’t be surprised. The way for investors to weather this kind of environment is to just focus on asset allocation.

Asset Allocation is the key

It is important to realise that Equity is not a zero-risk asset class, but certainly rewards patience and disciplined investing. Also, volatility, an integral part of financial markets, is a healthy phenomenon.

While equities may deliver reasonable returns, one must also downsize the returns expectations for medium-term, considering that market valuations are already expensive.

When any asset class is meaningfully undervalued, only then you can choose to invest most of your portfolio in it. If equity becomes a dirt-cheap asset class like 2008 or 2013, then it could have been wise to invest just in equities.

In the current scenario, we are not asking investors to avoid equities completely. On the contrary, retail investors should focus on Asset Allocation, i.e., invest in both equity and debt, or in MF categories such as Dynamic Asset Allocation / Balanced Advantage Funds. Such funds invest in equities when markets are declining, and book profits from equities when markets are rising i.e. ‘Buy Low & Sell High’.

Add debt to your portfolio

We also recommend investing in debt, mainly through the low-duration Credit Funds.  In such funds, the duration risk is limited as the portfolio consists of ‘A’ or ‘AA’ papers. These have good potential at this point as the yields have gone up sharply. In fact, the yield-to-maturity on some of these categories is much higher than what it was.

Further, considering positive long-term outlook for Long Duration Funds, these can be suitable for systematic investing. We expect short-term volatility in this category, particularly with global yields going up.  Systematic investing through volatile times helps average out the cost of investments and creates long-term wealth.

As such, investors must consider investing in a judicious mix of assets based on suitability, risk appetite, and investment horizon.

S Naren, ED & CIO, ICICI Prudential AMC. Views are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Earnings may well recover in 2019 given the poor growth of the past few years

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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There are four main questions:

What lies ahead for the markets in 2018?

Is this the golden era for stock market investments in India?

Will FY19 mark the revival of the earnings cycle?

What will be the effect of rising interest rates on the markets?

We have witnessed a surge in new investors entering the stock market and I believe it is incumbent upon investment managers to help set their expectations right and educate them on the nature of the stock market. The stock market is a market place, in which we get to allocate capital to businesses of our choice. Buying good businesses at a sensible price can enable a diversified portfolio to earn a reasonable return over time. A return, as many of you would be aware has been, higher than other asset classes over longer time frames and has provided the best protection against inflation. The return of the asset class is measured by the return of the main benchmark indices and active fund managers strive to add Alpha over and above the benchmark return.

As these new investors come in perhaps they seek certainty  in our answers to questions such as the four above. But it is not possible to have precise answers to the above questions.

The truth is that nobody can forecast the outcome for the market for any given calendar year consistently. The stock market does not recognise calendar years and its returns are not linear like in the case of Fixed deposits. If you ask a 100 people it is likely that somebody will get it right but you cannot establish who that person is before-hand and remember that even a broken clock tells time accurately twice a day. So take all predictions about returns with a pinch of salt. Even better distrust all forecasts. Nobody knows.

Whether this is a golden era will be judged by history ie post facto. It is impossible to know beforehand.  In 2003 there was no forecast that we would achieve average real GDP growth of 8.7% pa over the next five years. Or that the Sensex would rise at a CAGR of 43% from December 31, 2002 to December 31, 2007.

History is always written after the event. What we know as the period of Renaissance and the great enlightenment of Western Europe came to be labelled as such only afterwards. Same for the industrial revolution or the post-World War II boom in the US. These labels are best given after and not beforehand. What we now call the First war of Indian Independence (1857) was named as such nearly 50 years later in the early 1900s. (The British called it the Sepoy revolt of 1857 and maybe they still do). This may well be the golden period or it may not. How can anybody know beforehand? You should make your allocation to the asset class based on your financial goals and not based on forecasts of a golden period.

As regards analyst forecasts, I suggest we refer to the history book again. Analysts have been calling for a recovery in growth every year from 2014 and the numbers have not come good. Similarly during the period 2004-2007 analysts were consistently being surprised by the actual earnings growth coming in ahead of their forecasts. It is not that the analysts are poor at their job. The future is full of surprises — both good and bad.

To make a precise forecast for earnings is made all the more difficult by the number of variables and moving parts that go into it. Earnings may well recover in 2019 given the poor growth of the past few years and what looks like will be a weak base in 2018. But don’t anchor to these forecasts, they may or may not be right and the multiple that the market will pay for the earnings will fluctuate anyway. So why focus so much on the forecast?

As regards the impact of rising interest rates — It depends. Determining the causal impact of the changes in one variable on the stock market is challenging because the final outcome is affected by other variables. There may be little doubt that low interest rates have propped up equity valuations in recent times. This is true globally and in the past two years a similar case could be made in India as well. But we cannot be certain of the outcome in the market from a transition to higher interest rates, because the negative impact of higher rates may be offset by other factors.

For example,  if the increase in rates is an outcome of higher growth and it is reflected in rising earnings and expanding return on equity-the market may look through it.

Also, if the animal spirits of the investors rise during this period that may also contribute to the markets ignoring rising rates, at least in the short term.

Of course, beyond a certain point we do know from history that high interest rates are not good for equities. So the appropriate answer is that it depends. Correlation is not causation.

In answering the above questions with certainty, with precise forecasts of earnings & index targets we do a disservice to all investors— new and old.  Cut out the noise. Let me be clear, they are perfectly good questions but they should not be the basis of your investment strategy. The data you have seen and read about the superior long term returns from equities as an asset class are a fact. But to achieve them you will have to deal with volatility that is part and parcel of the asset class. How can you do that?

The simple way to navigate equities for most investors is through a Systematic Investment Plan (SIP). A long term SIP is the best way to escape the tyranny of sentiment and fluctuations in valuation. This will significantly increase the probability that that you create a portfolio at reasonable valuations by spreading out your investments over time. A SIP is not a maximisation strategy; it merely smoothens your return outcomes and enables you to overcome the behavioural challenges stemming from the intrinsic volatility of the asset class.

In addition, to achieve you financial goals, you would have to manage asset allocation in line with the appropriate range. You could also consider hybrid products or products where the Investment manager takes decisions on asset allocation.

As for more active investors they could combine an SIP or a Systematic Transfer Plan (STP) with more aggressive shifts in asset allocation. Many advisors have developed an asset allocation framework for this. The objective being to buy more of the asset class when valuations are depressed (be aware that this coincides with period when the news flow is very poor) and reducing allocations to the asset class when valuations are rich (news flow may well be very positive). Of course, this is easier said than done. In the words of the master, investing is simple, but not easy.

Vetri Subramaniam is Head- Equity UTI Asset Management Company Ltd. Views are personal.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Expect lower returns this year than 2017, says Nilesh Shah

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The year 2017 was a year of splendid returns. Small caps led the charge with more than half a century. Mid cap and large caps also scored more than a quarter of a century. There was absence of volatility. This came on the back of subdued earnings as valuations kept expanding.

But 2018 is unlikely to match 2017 on returns as well as volatility or risk parameter. It is likely to be more volatile and yet deliver lower returns.

We expect 2018 to be more volatile as there are couple of risks on the horizon which can impact market.

The first risk is the political risk. India is going to face state elections in crucial states in the calendar year and general elections in May 2019 as per schedule. State election of Karnataka in May and Rajasthan, Madhya Pradesh and Chhattisgarh in the second half of the year are likely to impact the market because the results will determine how market will asses the stability of the next government.

The general election itself will start getting discounted by the market in the fag end of the year based on various factors. In 2004, markets soared ahead of election, based on the India Shining campaign and crashed post election on seeing a Left front-supported government. In 2009, the markets had corrected to price de to a khichadi sarkar and moved up on seeing a stable government.

In 2014, the market continue to rise on expectations of a stable government. Elections have played an important role in the market in the past and 2018 and 2019 are unlikely to be different.

The second Risk for the market is rising interest rates globally led by the US and withdrawal of liquidity by central
banks around the world. India has been a beneficiary of global flows partly due to low to negative interest rates and liquidity pumped in by central banks of the developed world.

The US Fed is looking to raise interest rates three-four times this calendar year. If that pushes the US 10-year yield to above 4%, flows to the emerging market debt as well as equity will certainly slow, impacting India. We expect central bankers to be calibrated and gradual in their approach.

We don’t expect them to be cavalier to disrupt markets but it is worth remembering the risk of liquidity disappearing.
The other risks are usual suspects like oil prices and monsoon etc.

Fortunately, oil prices look to remain elevated for a short period of time and monsoon is likely to be normal with advent of La Niña. It is safe to to say that in 2017, India enjoyed a good macro environment with lower inflation, lower fiscal deficit, lower current account deficit, lower NPAs etc.

Year of Deterioration

But this year is going to be a year of deterioration. The fiscal deficit is budgeted to be wider and in an election bound year, is likely to exceed the budgeted estimate. The current account deficit on account of higher oil prices is likely to deteriorate. Inflation has picked up, though within the comfort zone of the RBI. This deteriorating macro situation is likely to keep market volatile.

For markets to move upwards, fundamentals and flows are required. Last year, flows pushed market upwards whereas fundamentals were lagging behind. In 2018, fundamentals are likely to be better whereas flows could take a breather.

In 2017, mutual funds absorbed huge flows. Their work over the last two decades resulted in an inflection point. Their flows are outpacing FII flows. In the budget of FY2019, a non- level playing field was created by taxing mutual funds but by exempting Insurance companies ULIPS. This can adversely impact flows in mutual funds.

We expect the finance minister will restore level playing field for the benefit for Indian markets. FII flows can be adversely impacted if MSCI carries out its threat of reducing India’s weightage in the Emerging Market Index. We have to work hard to educate MSCI in not doing the same.

The flows in 2018 will be driven by events like restoration of level playing field between Mutual Fund and ULIPs and MSCI weightage apart from how investors price in the political risk and withdrawals of liquidity / rising interest rates in global markets.

This year, the fundamentals are good despite some strong head winds. India Inc is doing a marvellous job despite the burden of high real interest rates and overvalued currency.

They are also doing well to absorb the lesser availability of credit especially at lower end of the rating curve. The combination of high real rates, low credit availability and overvalued currency has subdued demand and kept capacity utilisation of India Inc at lower levels.

There is Optimism in the Air

India Inc was cautiously optimistic for the bulk of the last three years as apart from rates, currency and credit, they had to tackle disruptive reforms like demonetisation and GST. Now they are becoming optimistic shedding cautious stance. They are becoming optimistic as demand seems to be picking up and an election bound government is likely to keep the spending tap open to boost demand. This will help improving capacity utilisation, leading to better margins.

If rates, currency and credit normalise, the recovery will be more broader and more faster. The investments in 2018 are likely to be led by the government and PSUs.

But I can see support from private sector post formation of the new government. Sectors such as agriculture, rural and infrastructure are likely to see higher growth due to focus of the election bound government.

In a lighter vein, 2018 can be described as “ Liquid Oxygen”, a joke made famous by Bollywood villain Ajit. Liquid will not allow a person to live and oxygen will not allow a person to die.

The markets upside will be capped by political uncertainty and rising interest rates and down side will be protected by the improving corporate bottom line.

For investors, 2018 is a year when they need to focus on asset allocation rather than market momentum. It will be a year of volatility rather than steady rise. It will be year of stock picking rather than sector picking. It will be a year of large caps rather than micro and mini caps. It will be a year of playing contrast rather than chasing momentum.

Nilesh Shah is chief executive officer and managing director at Kotak Mahindra Asset Management Company

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US approval of Glenmark’s Clobex shows red flags are not the end of the road for pharma companies

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On March 27, 2018, pharma company Glenmark announced the approval of the generic version of Clobex spray, a drug used to treat inflammation and itching of the skin caused by allergies and psoriasis. On a normal day, the approval by American drug regulator USFDA would not have mattered as the market size is only $30 million in the US with three-four competitors.

But given that the drug was approved from Glenmark’s dermatology facility at Baddi in Himachal Pradesh gave the announcement more attention than it would have usually. It happened to be the first approval the company received after the USFDA issued seven observations to the facility after an inspection conducted in November 2017. Usually, if the US authorities have reservations about a facility, they wouldn’t allow any new approvals.

A Positive Turn of Events  

While the facility itself doesn’t contribute much to the US — it accounts for less than 10% of Glenmark’s total US sales — the market was worried about the observations. Not only were the USFDA observations several, these also included the notorious out of specification ones, which meant test results fell outside the acceptance criteria. According to experts, the observations even held similarities with Lupin’s Goa and Indore plants that eventually escalated to warning letters. In fact, Lupin’s Goa plant and Glenmark’s Baddi facility shared the same inspector.

But with the approval coming through, it seems things have turned out differently for Glenmark. Receiving an approval to manufacture a drug (in this case Clobex spray) after being issued observations is considered positive (unless there is shortage or critical need of the drug).

An approval generally implies the USFDA is okay with the reply by a company to its observations and that it undertook remedies for making drugs for use by patients in the US from a facility.

Outcomes Matter, Not Observations 

Though the Glenmark stock barely moved on this news, I found the incident interesting. It was an example that reiterated that all instances of observations issued by the USFDA are not the same. One can’t assume similar outcomes for similar observations.

The incident shows that the number of observations doesn’t matter as much as the nature and intensity and that the reply and steps undertaken to remediate the observations by the company matter as much.

I’ll leave you with a few examples:

• Lupin’s Goa plant got three observations in April 2017.  Warning letter came in November 2017.
• Dr Reddy’s Srikakulam API plant got two observations in April 2017. Warning letter is still outstanding.
• Dr Reddy’s Bachupally plant got 11 observations in April 2017. It received inspection closure report, or an establishment inspection report (EIR) from the USFDA in December 2017.
• Sun Pharma’s Dadra plant got 11 observations in April 2017 and an EIR in Oct 2017

Whether all EIRs are positive needs a different discussion; in these cases we are assuming they are.

Ekta Batra is an anchor and associate editor, research at CNBCTV18. She has been tracking pharma and healthcare for almost a decade.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Five things to keep in mind while buying property in FY19

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Buying a property is one of the most critical investment decisions. Whether the decision will pay off depends on several factors. Here are a few things to bear in mind before you take the plunge.

One, don’t take the plunge just yet if you dream doubling your money in the next two-three years.  Sure, sales have started picking up and prices are looking a lot better in 2018 than they were in 2017.

Yet , my take is that unless you can lay hands on a sweet deal through a distressed sale, which essentially means the property is 10-15% cheaper than the market rate, don’t bother. Type in your budget and location on any of the leading online portals. The flats listed for sale on these sites will give you a pretty fair idea of the going rate.

Different Story for Genuine Homebuyers

Two, it’s a totally different story if you’re buying a home to inhabit.  Get going right away. For the exact same reasons as above. Inventory of unsold units is slowly but steadily falling, with new launches down 70% from the peak of 2013-14. Prices across the top eight top cities have started recovering.

It’s wise to buy when the price curve starts improving because you don’t want to catch a falling knife. Plus you get a decent tax break of Rs 2 lakh every year on your housing loan.

Three, for those of you earning up to Rs 18 lakh a year and looking to buy your first home, my recommendation is — act now! Government-sponsored CLSS (Credit Linked Subsidy scheme) knocks off another Rs 2.4 lakh from your EMIs and there is a straight-up subsidy available on home loans until March 2019.

Beware of the Splendour

And who doesn’t love villas and independent homes? But my take is stick to high-rise projects in gated communities with smart basic amenities – a club house, swimming pool and sport facilities such as a tennis or badminton court, a nicely laid-out walking or jogging track.

Don’t swoon over glitzy facades, elaborate landscaping, fountains, Jacuzzi, spas and fancy fittings.  Spend your budget on the largest carpet area or space between the four walls you can possibly buy.

Apartments are easy to maintain and are socially more fun. Your kids will find plenty of playmates and leave you in peace for binging on Netflix.  And if you don’t have kids, even better. You will find plenty of likeminded people to hang out with.

Four, what about buying a property to rent out? I’m going to stick my neck out on this one and say it’s not a bad idea.  Financial planners recommend this kind of investment as a portfolio diversifier, citing property rental income as an inflation hedge. Except in India the rental returns on residential property in the most sought after localities don’t stack up today. At best you will get 2-3% of the capital value as annual rent.

Over the next four to five years though, as demand and supply mismatch goes out of the system and more and more younger population joins the workforce, rental yields should improve, especially if price rise remains under check, which I believe it will. If you are the patient kind, buy a smart one or two bedroom apartment in a tier-I city with high employment potential. Stick to the big cities and avoid smaller ones.

Five, if you’re one of the erstwhile heavyweight real estate investors sitting on a few flats hoping to get your dream price one day, do smell the coffee! A home to live in, another to rent out  is all you should own, unless you’re seriously rich.

Genuine homebuyers are back, especially for ready-to-move-in property. So sell now if you find a buyer, at the going market rate and switch to a well performing equity or balanced fund.  Your net worth will look a whole lot better, several years from now.

Manisha Natarajan is Group Editor, Real Estate & Urban Development, Network 18 and has been watching real estate closely for 7 years.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Eventful policy, uneventful presser

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The RBI shocked, nay pleasantly surprised the bond and stock markets. It drastically cut its inflation forecast for the first half of the current year by half a percentage point to 4.7-5.1% from 5.1-5.6% in February.

It further cut the inflation forecast for the second half of the year (Oct-March) to 4.4% from its earlier forecast of 4.5-4.6% . Given that the RBI’s or rather the MPC’s mandate is to keep inflation close to 4%, this forecast effectively means there is no rate hike for at least one year. Indeed since the RBI’s Monetary Policy Report ( a document that it puts out twice a year, given its inflation-targeting mandate) forecasts FY20 inflation at 4.5% chances are there are no rate hikes for the next two years.

The RBI doesn’t say why it has cut the inflation forecast so drastically. Perhaps it is because inflation in the just ended quarter i.e March 31, is mostly coming at 4.5% , a good half a percentage point lower than the 5.1% that RBI forecast. Much of this is because of the unexpected crash in food prices. Looks like RBI has merely worked this into the April-September forecasts.

It is a little more difficult to explain the cut in the inflation forecasts for the second half. Although it is a minor cut, it is bewildering because, the government has promised to increase the minimum support prices for crops to 1.5X the production cost.

Economists believe such an MSP can well push up inflation by half a percentage point. Of course these are guesstimates, but it is fair to assume that the RBI also fears some hike due to MSP; it mentions this as a risk to its forecast.

What is more, the government has also indicated that it is preparing to implement the MSP diligently by paying farmers the difference between the market price and the MSP, with states bearing part of burden. Dr Ashok Gulati, a former chairman of the agricultural prices commission estimates that if market prices are 10% below MSP, the government’s scheme will cost Rs 43,700 crore, and if they are 20% below MSP, the cost to the exchequer could be Rs 87,400 crore. This means that the other risk the RBI points to its estimates, higher-than-expected fiscal deficit from states and centre, is a threat that will most likely be realized, especially in an election year.

Also, the RBI has assumed that crude prices will be around $68. There is a good chance that crude prices are even higher. Interestingly the RBI dovetails its inflation forecast with only upside risks. It hasn’t mentioned a single downside risk. All this clearly arouses skepticism about this 4.4% forecast.

Though, to be fair the RBI governor said at the outset, that he will be data dependent.

So is the RBI merely taking a gamble. The strong speech of the deputy governor on Jan 14 had scared away banks from the bond market.

The yield curve steepened to historic highs, as a result, the difference between the overnight repo rate and the ten year yield climbed to 160-175 basis points for a better part of February and March, versus a usual spread of say 70 basis points. This jump in yields threatened to jeopardise growth and more importantly the government borrowing programme.

In the past two weeks the government and RBI have taken two significant steps to bring down bond yields. First the government cut its first-half borrowing programme by 22% and hugely reduced the amount of long-term bonds that it plans to sell. Then the RBI moved in and allowed banks to provide for their mark-to-market bond losses in FY18 over four quarters instead of doing it in the quarter when the loss was incurred. This benign inflation outlook could be seen as an effort to push through the first half government borrowing programme.

Afterall the RBI, as the governor said today, is always data dependent. If the MSP impact on food is high and the fiscal deficits are larger than budgeted, the RBI can always raise its inflation forecast in the August or in the October policy.

There is, hence, a bit of uncertainty for markets in the second half of this year. Inflation could be higher than forecast exactly at the time when the government will be borrowing more than it usually does in that part of the year.

Of course, the RBI’s gamble may pay off and food inflation may indeed remain benign due to perhaps globally soft food prices, which experts say often rubs off on Indian food prices.

That said, what is uncomfortable about the RBI’s forecasts is the wide variation between two consecutive policies. What changed so much in two months that RBI cut its inflation forecasts so much.

Again, in the February policy, the RBI spoke of the need to “nurture” the “nascent economic recovery”. And just sixty days later it speaks about declining output gap in the economy and growing investments. That’s simply too much variation between two consecutive policy statements.

Finally, what was most inexplicable today was not anything in the RBI’s statement but what happened in the press conference that followed. Seven journalists got a chance to ask questions and not one uttered the word PNB or ICICI!

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The way forward to conduct simultaneous elections

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Amit Shah, BJP party chief, has reportedly written to the Law Commission in favour of holding simultaneous polls.

He said simultaneous polls is not only a concept but a principle that has been successful in the past and that it can be implemented.

In the said letter to commission chairman Justice B S Chouhan, Shah said that the ‘one election’ idea can work as it will keep in check the expenditure and make sure the nation is not in “election mode” throughout the year.

Here is an analysis of simultaneous polls by YV Reddy:

A proposal for conducting simultaneous elections to the parliament and all the state Assemblies is under serious consideration by the Union government.

The Union government has sought the views of the general public on my.gov web portal consequent upon the President and Prime Minister pitching their support to the idea of simultaneous polls.

As a concerned citizen, I summarise here the stated objectives of and rationale for the proposal in order to analyse and suggest a way forward, an alternate agenda for electoral reform.

I argue that the proposal as explained in official documents is based on wrong assumptions, and that the arguments made in favour of the proposal are weak. I explain that they understate the critical impact the proposal can potentially have on the level playing field between national and regional parties in the electoral process, and that the motives for pursuing the proposal are not clear.

However, I concede that the proposal seeks to address some weaknesses in our system, which should be addressed urgently. Hence, an alternate agenda for electoral reforms to strengthen democracy, federalism and unity of the country, is suggested, as the way forward.

The alternate agenda contains five items of which consideration of simultaneous polls will be, if at all, at the end.

These are:

First, the efficacy and functioning of the Model Code of Conduct including its effectiveness and desirability should be reviewed and the design modified as considered appropriate by the Election Commission.

Second, the experience with anti-defection law in terms of the functioning of the Parliamentary and federal systems has to be reviewed, and amendments made as appropriate.

Third, satisfactory governance arrangements within the political parties have to be made a condition for continued recognition of the political parties by the Election Commission.

Fourth, all reforms in electoral system should be considered within our Parliamentary system and the unique features of our federalism through which the country’s unity has been strengthened over seven decades.

Finally, the desirability of simultaneous elections has to be considered if that is considered necessary after undertaking the above tasks. The alternate agenda proposed is not inconsistent with the time frame indicated by the two official documents for possible implementation.

Objective

The objective of the proposal for simultaneous polls is best summed up in the concluding para of the Seventy Ninth Report of the Parliament of India (Rajya Sabha) titled “Feasibility of Holding Simultaneous Elections to the House of People (Lok Sabha) and State Legislative Assemblies” dated December, 2015 (hereinafter referred to as Report).

“The Committee is conscious of the fact that holding simultaneous elections may not be feasible in 2016 or even in a decade but it expresses confidence that a solution will be found to reduce the frequency of elections which relieve people and government machinery being tired of frequent electoral processes. This is important for India if it is to compete with other nations in developmental agenda on real time basis as robust democratic country.” (para 20).

Thus, the stated objective of the proposal is to enable India to compete with other nations “in developmental agenda”. But, the available data shows that India is likely to record the highest or second highest growth in the world. How do we say that it is not able to compete in “developmental agenda”? Is it possible to assume that the standards of governance in the country would improve with simultaneous elections? The justification can, perhaps, be found in the penultimate sentence of the above para, which refers to the need to reduce the frequency of elections “which relieve people and government machinery being tired” of frequent elections. There is no firm evidence of people being less enthusiastic in their participation in elections when the frequency was higher or of the bureaucracy being tired to an extent that such a drastic solution is needed. On all accounts, the participation of voters in India in the elections is higher than in most other countries in the world.

Participation has not been declining over the period spanning simultaneous elections initially and otherwise subsequently. The hectic activity and the increasing amounts spent by all stake holders does not point to their being tired.

In support of the proposal, the Report gives precedents of only two countries practicing simultaneous polls, namely, South Africa and Sweden (para 5). To buttress the case, the Report quotes the recommendations of Law Commission (para 6.0). Read carefully, the recommendations point to the need for stability and the desirability of simultaneous elections as a ‘rule’, and adds that exceptions are inevitable. The recommendations by the Law Commission seem to be in the nature of an exhortation to the Election Commission.

The Report points out that elections were held simultaneously soon after independence and hence that there should be no objection to the proposal. The fact that simultaneity is contextual or was “happenstance” is recognised by the Report itself. True, simultaneous polls are feasible but that does not make it desirable, worthy of a rule.

The Report narrates several standalone justifications for holding simultaneous elections (Paras 6.2 to 6.5). These are avoidance of (a) massive expenditure; (b) the policy paralysis and governance deficit; (c) frequent disruption to normal life, such as disruptions to traffic pollution, essential services; and (d) demands on security forces for conduct of elections over prolonged period.

On (a), the savings in expenditure, and its magnitudes on a comparative basis between the current system and simultaneous elections are not clearly estimated in the Report. The Election Commission itself does not seem to subscribe to the idea of significant savings through simultaneous polls (Para 7.1). On (b), there is evidence of frequent constraints on policy making and I will address this below. As regards (c) and (d), a case has been made for minimising the inconvenience and burden on citizens on account of elections. It is true that some of the government staff at state level has to be on election duty for about seven days, and this is not reflected as expenditure. Escalating costs of maintaining law and order and administrative inefficiencies are more general issues and not specific to electoral cycles.

We notice that presumably prompted by the questions posed to it, the suggestions of the Election Commission to the Parliamentary Committee for the conduct of simultaneous elections explain in detail the implementation aspects (Para 7.0). The Report adds that Election Commission of India also “pointed out” several difficulties which might be encountered for conducting simultaneous elections. As per the Report, the Commission expects an expenditure of Rs. 9,284.15 crores for procurement of additional machines for simultaneous elections which have to be replaced every fifteen years. They will have to be stored in warehouses which entail additional expenditures.
In essence, as para 19 put it, the Report seeks to “open a debate” on the subject; and a case is made out “in the larger context of economic development”. To that extent, the Report is commendable.

Analytics

The analytics behind the proposal are described in detail in a Discussion Paper titled “Analysis of Simultaneous Elections : The “What”, “Why” and “How” by Bibek Debroy and Kishore Desai of NITI Aayog in 2017 (hereinafter referred to as Discussion Paper). The arguments in favour of the proposal are summed up in Para 3.2 of the Discussion Paper:

The paper broadly categorises key adverse consequences of the existing electoral cycle into: (a) Impact on development programmes and governance due to imposition of Model Code of Conduct by the Election Commission; (b) Frequent elections lead to massive expenditures by Government and other stakeholders; (c) Engagement of security forces for significantly prolonged periods and (d) Other Issues as described in para 3.27 of the Discussion Paper: Frequent elections disrupt normal public life; frequent elections perpetuate caste, religion and communal issues across the country; and frequent elections adversely impact the focus of governance and policy making.

A close scrutiny of the above arguments in favour indicates the weakness of the arguments.

Firstly, if the Model of Code of Conduct, a code devised by Election Commission, is beset with problems, the first step should be to revisit it and review the working. Has the Code of Conduct been effective or is it superfluous? If the electorate is so enlightened, as claimed by the Paper, to distinguish between choices for Parliament and Legislatives in simultaneous election, it should be enlightened enough to see through the game of influencing the elections by politically motivated policy actions on the eve of elections. So, the priority for review should be the continued usefulness of Code of Conduct.

Secondly, savings on expenditures for conduct of elections by government in a simultaneous manner are not clear. The paper mentions that expenditure by thbe Union government for conducting Lok Sabha elections was Rs 1,115 crore for 2009 elections and Rs.3,870 crores for 2014 elections.

Ideally, the amount spent for conduct of elections should be considered as a proportion of total expenditures in the budget for appreciating the budgetary impact (Para 3.15). It appears that such expenditures are miniscule as a percentage of the total budget. If so, savings will be miniscule. The following table gives the expenditure incurred on elections in the concerned year by the Union Government.

The framework for expenditure is: for Lok Sabha elections, Union bears all expenses, and for state elections, the state concerned bears all the expenses. If they are concurrent, expenses are shared 50:50 basis. All expenditures towards law and order be it Lok Sabha or State, the States share the cost.

In a way, states rather than the Union should be more concerned with cost in the conduct of simultaneous polls, vis-a-vis the current system. In fact, all the costs of standalone assembly elections are entirely borne by states. There is no evidence that states are at the forefront in pleading for simultaneous polls.

Thirdly, engagement of security forces for prolonged period is a reflection of factors other than the electoral system. Is the problem simultaneous elections or law and order? It will be interesting to compare the expenditure on security forces deployed for the personal security of legislators and Parliamentarians in 1950, 1970 and now.

Fourthly, the other issues raise interesting questions relating to adverse impact on normal activity, on current system on caste and focus on governance.

Any election is a diversion from normal activity. So, where, how and when does one draw the line between necessary and not necessary diversion? Is this diversion new or proving to be not worth-while now? It is not clear how caste and communal issues are brought out in election times only. How many communal riots have coincided with elections? The argument that frequent elections are a diversion from focus of governance is strange because elections are to be held to ensure legitimacy of governance. Simultaneous polls do not enhance but could dilute the legitimacy with periodic interruption to functioning of elected government in some state or other.

What are the arguments against?

They are listed in para 4.4 of Discussion Paper under three headings: operational feasibility; impact on voter behaviour and the undermining of accountability of politicians. It addresses these concerns also. The paper explains feasibility can be worked out through constitutional and legal changes. I agree that the task is complex, as recognised by the paper.
The potential impact on behaviour may give a clue to the motives for the proposal.

Motives

It is no secret that in recent years, whenever simultaneous elections are held, candidates chosen for election to Parliament by political parties undertake to finance party candidates for Assembly elections. The non-electoral gains out of electoral victory in Parliament are infinitely more than at the state level. National parties have what may be described as “economies of scale” if elections are held simultaneously with a clear disadvantage for regional parties, both in Parliamentary and legislative levels.

The paper recognised relevance of this aspect indirectly when it states:
“The primary hypothesis of this criticism is that Indian voters are not mature / informed enough to differentiate between the voting choices for State Assembly and Lok Sabha in case simultaneous elections are held. This situation could lead to – a) National issues impacting electorate’s behavior for voting in State Assembly elections; or b) State issues impacting electorate’s behavior for voting in Lok Sabha elections. As a result, voter behavior gets influenced and he/she may vote for the same political party, which in most cases may be larger national parties.” (Para 4.4.b).

An interesting part of the paper is in paragraph 4.11 and 4.12. They deal with available evidence indicative of possible advantage for national parties over regional parties in simultaneous polls. If that be the case, there could be harm to the federal democratic structure of the Indian polity. However, such concerns are somewhat summarily dismissed in paragraph 4.16, which states:
“To sum it up, correlating a particular parameter (simultaneous timing of elections) to explain election results would be over-simplifying the complexity of voting behaviors and undermining the maturing of Indian electorate as well. Together the above arguments clearly indicate that there is no strong basis to conclude that simultaneous elections should not be considered.”

Independent analysis has shown that voter participation in Parliamentary elections tends to be high when simultaneous polls are held. Surely, this is indicative of the impact on voter behaviour. Such impact could be beyond mere participation but extend to choices.

An unstated motive may be to enhance stability through simultaneous polls which would add to nation building efforts. The belief in political stability being an advantage by itself is shared by many. The evidence available shows the importance of “political system stability” more than the “political stability”. The system-stability has been demonstrated by the successful management of balance of payments crisis, initiation of reform and consistent high growth under a series of coalition governments since 1990. Did our economy do better when there were simultaneous elections or otherwise?

The motive may also be to overcome the difficulties faced by those elected as Prime Minister not being able to fulfill the promises that they delivered at the time of Parliamentary elections. The problem arises mainly because Prime Ministerial candidates make promises on subjects that are pre-dominantly in the jurisdiction of the states and not the Union Government.

The paper concludes with a detailed proposal that captures the complexity of the task.

“Building further upon the above idea proposed by the Parliamentary Standing Committee which they recommended after extensive analysis and stakeholder consultations, it is suggested that simultaneous elections be considered in two-phases. Phase I is suggested to be in sync with that of the Lok Sabha elections i.e. April–May 2019. Phase II is suggested approximately mid-way in the term of the Lok Sabha i.e 30 months after Phase I – around October–November 2021. Thereafter, it is envisaged to conduct elections every 2.5 years (30 months) in the country once the entire electoral cycles of Lok Sabha and all State Assemblies are synchronized by December 2021.” (Para 5.15).

Way Forward

There are admittedly several issues relating to functioning of our election system that impinge both on law and order, and development. They need to be addressed; but placing the proposal for simultaneous polls as a priority for debate gives an impression of diverting attention from major issues. Hence, the proposal should be considered in a broader context, in particular those which gave rise to the proposal.

Firstly, how effective has been the Moral Code of Conduct in achieving the objective of ruling party influencing election outcomes? Is it possible to help the voters become conscious of such practices, rather than have “a shut period” for unfettered governance by elected governments. In a way, the present system is demanding energies of Election Commission to give a ruling, based on limited information on policy decisions or expenditure decisions. Rulings of the Commission are based on an assessment of impact and urgency. Perhaps the Election Commission could comment on proposed decisions rather than prohibit decisions that are likely to influence the outcomes. In fact, it could outsource this function of commenting on violation of Code of Conduct to a group of Eminent Persons and putting it in the public domain. This would give relief to the Election Commission to eliminate restraints on legitimate functioning of government, and empower people with full information. If people could distinguish between national party manifesto and state manifesto in simultaneous polls, they should be able to decide whether specific decisions are meant to influence the outcomes. In any case, it is time the current working of the Code of Conduct is evaluated by an independent body to be appointed by Election Commission itself. A revision of the Model Code of Conduct system to reduce its adverse impact would render contentious recourse to simultaneous elections somewhat superfluous.

Secondly, there are serious concerns about the functioning of the anti-defection law. Has it reduced political instability, and if so, at what cost? Has the system resulted in authoritarianism in the party? For instance, a member elected to the Rajya Sabha is supposed to represent the interests of the state that elects him or her, but now he or she is constrained by party discipline. Even election to the Rajya Sabha by Assemblies are de-facto by political parties. Even opportunity to participate in Lok Sabha and Rajya Sabha, in terms of time and slot, is in reality decided by the party leadership with the agreement of the Speaker or Chair. Is it possible that the proceedings or lack of proceedings in Parliament reflect the behest performance, at the behest of party leadership? In fact, there is virtual abdication of responsibilities by a member when a party authorizes its leadership to decide on contentious matters. Further, in actual implementation of the law, several distortions are noticed depending on the Speaker’s inclinations. Ideally, anti-defection law should be restricted to voting on a no confidence motion only. A review of working of anti-defection law, to be independent, has to be a non-governmental initiative.

Thirdly, the downside of the anti-defection law is compounded by the absence of sound governance practices in the political parties. Office bearers are routinely nominated by the leaders who are authorized to do so. The nominated office bearers in turn elect leaders who have nominated them. Such authorization is not even subject to the fig leaf of subsequent formal approval. It must be recognised that standards of governance in political parties is critical for sound functioning of democracy and hence integral to the core duties of Election Commission. The Central Election Commission which recognises a political party should have the fiduciary responsibility to ensure good governance; and implicitly to enforce it to the point that it should be able to derecognize the party if inner party democracy is not observed.
Finally, the proposal for simultaneous polls has significant implications for the functioning of federalism in India, and indeed the basic structure of the Constitution.

Dr. Ambedkar laid out the unique features of our Constitution when he introduced the draft Constitution for approval of the Constituent Assembly. He explained the rationale for our Parliamentary System with continuing accountability and for a Union of States. The latter eschewed separate citizenship for Centre and State but provided for separate legislative bodies with division of powers.

It is useful to recall the grand design that Dr. Ambedkar crafted. On form of government, he said: “The daily assessment is done by members of Parliament, through questions, Resolutions, No-confidence motions, Adjournment motions and Debates on Addresses. Periodic assessment is done by the Electorate at the time of the election which may take place every five years or earlier. The Daily assessment of responsibility which is not available under the American system is it is felt far more effective than the periodic assessment and far more necessary in a country like India. The Draft Constitution in recommending the Parliamentary system of Executive has preferred more responsibility to more stability”.

Is the proposal not tilting in favour of more stability and less responsibility?
On the form of the Constitution, Dr. Ambedkar said: Two principal forms of Constitution are known to history – one is called Unitary and the other Federal. The two essential characteristics of a Unitary Constitution are: (1) the supremacy of the Central Polity and (2) the absence of subsidiary Sovereign polities. Contrariwise, a Federal Constitution is marked (1) by the existence of a Central polity and subsidiary polities side by side, and (2) by each being sovereign in the field assigned to it. In other words, Federation means the establishment of a Dual Polity. The Draft Constitution is, Federal Constitution inasmuch as it establishes what may be called a Dual Polity. This Dual Polity under the proposed Constitution will consist of the Union at the Centre and the States at the Periphery each endowed with sovereign powers to be exercised in the field assigned to them respectively, by the Constitution.”
On the link between dual polity and dual service, he says: “The dual polity which is inherent in a federal system as I said is followed in all federations by a dual service. In all Federations there is a Federal Civil Service and a State Civil Service. The Indian Federation though a Dual Polity will have a Dual Service but with one exception”. That is the All India Services.

The proposal for simultaneous polls cuts at the root of this grand design of the Constitution that served us well so far.

In 1947, many people especially in the UK doubted whether India will survive as a united country. In the 1960s, Selig Harrison wrote that either India will break up or become authoritarian. That did not happen.

Ironically, the UK is facing the prospect of secession by Scotland and Spain by Catalonia. Perhaps they took unity for granted and did not accommodate diversity.

Way forward, the proposal for simultaneous polls should be deferred by addressing the concerns of those who advocate it within our Constitutional structure – a structure that served the country very well for 70 years – a singular achievement in South Asia and, perhaps, the whole developing world.
The Niti Aayog Discussion Paper recognises that this simultaneous polls is only one element, a first step, in the electoral reforms. It says:
“As is the case with long-term structural reforms, implementing this measure would also cause some short-term pain. However, this would be a stepping stone towards improved governance and a larger initiation of “electoral reforms” – a desperately needed measure to re-boot the Indian polity.”
The alternate agenda presented here is precisely on the same lines except that the simultaneous polls is not the first but the last of the agenda for reform.

To sum up, the gains out of the proposal are uncertain, the process complex, and the outcomes potentially very risky, even at low probability.

YV Reddy is a former governor of the Reserve Bank of India.

This article was originally published on April 6, 2018. It has been resurfaced as Prime Minister Narendra Modi, who chaired his first all-party meet on Sunday, has invited party presidents to a meeting on June 19 to discuss “one nation, one election”.

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Facebook may be guilty of data breach, but it is protected under cyber law

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Facebook has been receiving a lot of flak globally for the misuse of user data for influencing their behavior and voting pattern. However, this has been Facebook’s business model for years now.

How else do you think Facebook is able to pay its employees and have such fancy offices despite offering free social media services to users? It was never something that is just being unearthed as the media is projecting the whole episode.

Facebook’s Graph API enabled access to information about users and the users have consented to the same in the terms and conditions at the time of signup. Every time Facebook amended its terms and conditions and privacy policy, the users were intimated about it and they consented each time by clicking “I Agree”.

The Consent of Users

When Facebook messenger as a mobile app was launched, I read through its terms and they were clearly taking access to a lot of data in the cellphone than that was needed. Users still gave consent.

A user can choose not to use the service of Facebook, but they chose to ignore the potential issues and consent because using Facebook was fun and the ‘likes’ an ego booster. Ergo, the potential privacy risks were relegated to the background.

Today this has become a major issue in India because the US President Donald Trump won the election due to harvesting psychological data from Facebook and building election campaigns to suit the mentality of the voters and using the services of political data mining company Cambridge Analytica. I will not use the word “influence” here because users by a free will agreed to their information being shared with third party companies such as Cambridge Analytics.

Clearly, this mechanism was a success. Let’s keep Facebook aside.

Every election campaign involves the draft of a party manifesto keeping in mind the issues that the people face and promises to address them. Market research is done to obtain this data — just that the data obtained from Facebook is a lot more accurate and can yield more accurate results.

The difference is also that the Facebook process is online compared with the offline method of using newspapers and interviews to convince voters and influence their decisions. All major product brands follow the same rulebook with social media marketing.

In India, this has become a pressing issue because the Congress and a few other parties are alleged to have now resorted to using Facebook the Trump way. Thanks to the success rate of this method, it would increase the chances of them engineering favourable results in the elections.

Sudden Realisation of an Old Practice

But remember Facebook has been collecting user data for years. No one cared. Today all of a sudden, it’s become a data breach.

Under Indian law, classification of this activity as a data breach is debatable because under Section 43 A of the Information Technology Act, though Facebook is liable for not having had reasonable security practices to secure user data, this liability stands dissolved by the user consent because the social network has explicitly mentioned in its privacy policy that data is shared with third parties.

A user was informed well. Even when any third-party application is accessed through Facebook, a user is explicitly asked to consent to their name, public profile, friend list etc being accessed by the application. The user of course has a choice to not accept and not use the application.

From this perspective, Facebook has exercised reasonable security practice. However, it does bother me that with the lack of knowledge of “consent” among users in India, a large number of users are allowing third parties to access their data, which can be grossly misused to commit cyber crimes and even physical crimes.

Many apps on Android playstore too are gaining access to photos, location, messages, microphone and everything that inhabits a user’s device. There have been instances of children being kidnapped by usage of child game apps, which map their location.

This issue is not restricted to Facebook alone.

Clearly, India needs the Data Protection Act to be passed as soon as possible. Citizens should be educated about the concept of “consent”.

The proposed Data Protection Act highlights data localization, which implies that the data of Indian citizens remain in the Indian cyberspace, and any service provider offering online services in India has to set up data centers here.

This has its merits and demerits, and is still being debated, though from a long-term perspective, the merits will outweigh the demerits.

Puneet Bhasin is a cyber law expert and president- of Cyberjure Legal Consulting.

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There is a common thread to all successful FMCG companies in India and it is called UniPepCad

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Success in fast moving consumer goods (FMCG) is a symphony of perfection — a perfect product at the perfect price, available at the perfect store, at the perfect time in perfectly attractive packaging. And don’t forget the perfect communication with a brand name that sounds well, perfect. The need for such perfection increases manifold if success has to be achieved in India.

Due to its diverse geography, languages, culture, climate, income groups and tough terrain, India is the toughest, yet most exciting market in the world. From “I’m not like those people!” to “We are like this only!”, the Indian consumer switches individuality and homogeneity with unparalleled ease.

A few years ago, when I was given the opportunity to analyse the FMCG sector as a profession, I was both salivating with excitement and palpitating with nervousness. “Watch for changes, small and big,” is the mantra I started with, and still follow diligently.

Top Deck Holds Key to Success

As time went by, I realised that a change in the top management impacts an FMCG company’s future like no other. An even bigger change happens when an outsider joins the helm.

While each individual may have a different outlook and goals towards a company’s growth, some have made a bigger impact than others. On further analysis, the similarities between these leaders who made the difference were stark.

What I soon realised was that all the great FMCG leaders in India come from what I call “UniPepCad”.

UniPeCad is the acronym I have created for the three companies from where great FMCG leaders have emerged. They are Unilever, Pepsi and Cadbury.

I’ll talk about all these leaders in a moment. Before that, note that all the three FMCG powerhouses have succeeded in all the perfection parameters I mentioned above.

Deep and wide distribution chains. Check. Popular and a vast array of products. Check. Super brands at attractive prices. Check. Effective communication. Check.

Case Studies on How to Win in India

HUL is a case study in supply chain management, boasting several stock keeping units and a raft of products ranging from ice creams that don’t last beyond 20 minutes to soaps, shampoos and detergents that have a shelf life of many months. The Cadbury rulebook offers lessons on how to create a cultural change in a country that is divided by Motichoors, Gulab Jamuns, Sandeshes and Payassams and unite it with “Kuchh Meetha Ho Jaye”.

The reason I chose Pepsi over Coke is because I believe that at the peak of the Cola wars, Pepsi was able to create a strong niche for itself and a bigger mind share than Coke. Pepsi had some phenomenal ad campaigns before Coke came up with the “Thanda Matlab” series.

I vividly remember most of Pepsi’s cricket and Bollywood commercials. While I don’t have the data to prove Pepsi’s supremacy over Coke during those days, I reckon they did very well, and there’s “Nothing Official About It!”

So here are the members of the FMCG Hall of Fame. They have all emerged from the hallowed precincts of UniPepCad.

Varun Berry, MD of Britannia Industries

Varun Berry’s exploits at the Wadia-owned Britannia are well known. He’s an illustrious alumnus of the UniPepCad, having worked at both Unilever and Pepsi before turning his attention to cookies.

Prior to joining Britannia as COO in 2013, Berry served as the CEO of the food business at PepsiCo India Holdings between 1993 and 2012. He also worked at Hindustan Unilever in various marketing and sales roles.

Under his watch as managing director, the revenue of Britannia increased to Rs 9,054 crore in 2016-17 from Rs 6,185 crore in 2014-15. Berry’s biggest impact was seen in the reduction of costs, and improvement in margins, which surged to 14.1% in 2016-17 from 9.1% in 2014-15.

As a result, the profitability of Britannia increased 2.2 times in this period. Shareholders are elated because the company’s stock price has surged six times since the date of his appointment.

 Bharat Puri, MD of Pidilite Industries 

 Bharat Puri has a distinguished pedigree. He drew his initial lessons from his illustrious cousin, Aditya Puri, managing director of HDFC Bank. After graduating from IIM Ahmedabad, he joined Asian Paints in 1982.

The UniPepCad leg of his life began in 1998 when he joined Cadbury India.

He was named managing director of Cadbury in 2002 and remained at the helm until 2008. During this period, the company faced its biggest challenge ever in the form of the rampant incidents of worms in its products. The manner in which Puri and team handled the crisis is the stuff of B-School legends.

Puri has been an executive director at Pidilite since 2008 and was named MD in 2015. Under his watch, Pidilite earnings improved to Rs 863 crore in 2016-17 from Rs 508 crore in 2014-15.

Dalal Street has rewarded the performance with a stock price jump of nearly 50% during his tenure.

 Saugata Gupta, MD and CEO of Marico

 The ever-smiling, shy engineer from IIT Kharagpur and graduate from IIM-B is responsible for the healthy finances and formidable market position of Marico, which owns popular brands such as Parachute, Saffola and Nihar.

Gupta’s stint at UniPepCad came at the start of his career at Cadbury where he spent nine years in various roles in sales and marketing. At Marico, Saugata has been CEO since April 2013 and managing director since March 31, 2014. Under his watch, the company’s revenues increased to Rs 5,936 crore in 2016-17 from Rs 4,596 crore in 2012-13.

Gupta has pressed ahead with higher cost cutting and better performance of premium products, which expanded margins by 600 basis points and grew profits by 100% in five years since 2012-13. With the company’s bottom line increasing, shareholder returns have tripled to 320 from 106 at the time of writing this article.

One basis point is a hundredth of a percentage point.

 Anand Kripalu, MD and CEO of United Spirits 

 Kripalu has been the managing director and CEO of drinks maker United Spirits since September 1, 2014. Previously, he worked at Cadbury in various capacities, including managing director of Mondelez India Foods after its takeover by the American company in 2010.

Kripalu holds a double degree from UniPepCad as he has not only worked with Cadbury but also with Unilever. He joined Unilever in 1983 as a management trainee and spent more than two decades at the company.

Despite the heavily regulation in alcohol, the operational performance of United Spirits has steadily improved under Kripalu. The company’s EBITDA has grown to Rs 1,429 crore in 2016-17 from a loss of Rs 138 crore in 2013-14, the year before Kripalu induction. Notwithstanding a volatile run on Dalal Street, shareholders of United Spirits are richer by 52% already.

 Pratik Pota, CEO of Jubilant Foodworks

 The Jubilant Foodworks story represents one of the most phenomenal turnarounds in recent history. When Pota joined Jubilant in August 2017, the company had just reported its weakest financial performance. It lost market share and customers.

Shareholders were dumping the stock. The stock plummeted to Rs 761 apiece, down 60% from its peak. Enter Pota.

Pota was previously with PepsiCo India Beverages and was named CEO of Nourishco beverages, the joint venture between Pepsi and the Tatas. Like Berry, Pota too served at Hindustan Lever as a manager of marketing. He also served in Airtel for four years where he played a key role in launching Airtel mobile operations in western India.

Pota, who holds an electrical engineering degree from BITS Pilani and management degree from IIM Calcutta, has managed to revive Jubilant by improving products, reducing costs and focussing relentlessly on bringing back the glory of its flagship pizza brand Domino’s.

In the nine months that Pota has been in charge, Jubilant has reported the best financial performance in recent times, improved same store sales growth to multi-year highs. The stock price reflects this progress, surging to around Rs 2,350.

Pota’s entry into this list of UniPepCad members is the most recent and his journey needs to be watched closely.

Mangalam Maloo is a senior research analyst and market anchor at CNBC-TV18. 

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Why the Karnataka elections are a psephologist’s nightmare

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Karnataka elections, the way things are turning out, will be quite a challenge to psephologists who analyse to death caste arithmetic and try to predict the outcome based on convoluted theories and complex statistical interpretations. It is not easy to extrapolate the mind of a population from sample answers obtained from a miniscule percentage. There are myriad forces at play and divining the mind of the voter before elections is tricky.

This time there is complete chaos in the Karnataka political landscape, making the predictions even more challenging.

The Congress Scorecard

The Congress seems rejuvenated with Rahul Gandhi taking over the mantle of leadership from Sonia Gandhi. He appears more self-assured and has shown a more serious commitment to politics than in the past. He has been relentlessly attacking the BJP’s brand of politics and continues to slam the government over its actions such as demonetisation and launch of GST or allegations of nexus with disgraced diamantaire Nirav Modi.

Rahul is also now more careful with words and is drawing massive crowds. The Congress social media campaigns, led by former Kannada actor Divya Spandana, has also acquired spunk in recent times.

But such a frontal attack bears risks and could boomerang. Prime Minister Narendra Modi is still popular, as many polls have shown.

It may also not be a cakewalk for the Congress. People are canny. They eventually decide to vote based on the performance of the incumbent government. Simply put, they will vote for Congress if their lives are better than before.

Siddaramaiah, the incumbent chief minister, is a mass leader, with a wider following than other Congress leaders. But he does not have much development to show.

Job creation in rural Karnataka is almost nil. Bad roads, power shortage, scarce drinking water, poor sanitation, migration from rural to urban areas resulting in terrible living conditions, shoddily-run government schools and pathetic health care continue to plague the state like the rest of India, regardless of the party in power. Bengaluru city, which was once one of the best liveable cities in India, is grappling with creaky infrastructure.

How is the BJP doing?

Against the background of such shoddy performance, one would think the BJP would ride the Modi magic and romp home. But the party is a house in disorder.

The record of the BJP while in power under the watch of BS Yediyurappa, who has again been projected as the chief ministerial candidate, was abysmal. The government was shadowed by massive mining scams and real estate scandals.

Yediyurappa was forced by the party high command to step down. Three different chief ministers ruled the state in as many years. Things are no better now.

The party is riven with fierce feuds between factions. While some like KS Eshwarappa, a past president of the party who also aspires for the chief minister’s chair, were openly crossing swords with Yediyurappa, others were lobbying behind the scenes to prevent Yediyurappa’s return to the party. Even after his return, a sizeable section opposed his name as chief ministerial candidate.

The rivalry between Union minister Ananthkumar and Yediyurappa is an open secret. Adding to these intra-party shenanigans and rivalries are the Reddy brothers who still wield enormous clout in the Bellary region. They are asserting themselves and demanding tickets for their allies in the elections.

The decision by the BJP brass to pick Yediyurappa to lead the Karnataka elections was largely a caste-based decision, overcoming stiff opposition that his choice would undermine the larger vision of the BJP as a party with a difference and at odds with Modi’s election campaign credo of good governance. The central leaders threw caution to the wind aside as they were swayed by his huge influence as a leader of Lingayats, the dominant caste, who can tilt the election in the BJP’s favour.

But Siddaramaih’s wily move of recommending to the Centre the state Cabinet decision of declaring Lingayats as non- Hindus and recommending minority status to the community has caught the BJP completely off guard. The Central leaders including Yediyurappa himself are flummoxed and have not made their stand clear, shifting their position frequently because they are unable to gauge the mood of the community.

The BJP is in a fix. If they woo all Hindus and consolidate these votes as one, what will happen to Lingayats if they proclaim they are not Hindus? Psephologists will have difficulty figuring that out.

Then There is the JD(S)

There is one more party, almost a spent force according to many, which is in the fray — the Janata Dal (Secular). Though the party contends it is secular, its distribution of tickets is based on caste arithmetic, not unlike several other parties.

The JD(S) is still led by the ageing, but never-say-die octogenarian Deve Gowda. It is seen as a family party with an increasingly shrinking base.

Siddaramaiah, who was a deputy chief minister under the late JH Patel and was once a diehard Deve Gowda acolyte when the JD(S) was in power, rebelled against the party when Deve Gowda superseded him over his sons in the party hierarchy and joined the Congress.

HD Kumaraswamy, the son of Deve Gowda, became chief minister with BJP support. His term was a complete disaster.

The BJP and JD(S) were sent packing home by the voters who voted the Congress back to power. Now, the children of Deve Gowda are feuding in public over seats.

The JD(S) still wields influence in the pockets of Hassan, Mandya, Mysore , and Bengaluru rural —  the old Mysore districts that are inhabited by a large population of Gowdas, a farming community. Deve Gowda has a large following in these areas as the farmers believe he represents their interests.

He is now busy stitching up a grand electoral alliance with SP, BSP, NCP, MIM (All India Majlis -e -Ittehadul Muslimeen ), CPI and CPM. It is a quick fix of disparate groups with some of them having conflicting interests or ideologies and without much of a local cadre base to secure victory at the hustings.

Seat sharing looks tough and the efforts have already run into rough weather.

Against such a dismal backdrop, the voter is at a loss. When no party has a good record, when one is confused whether to pick better governance or improved living standards and quality of life, one simply keeps the cards close to the chest and casts the vote at the last moment according to one’s conscience. That is what I think the common people will do.

Poll pundits, all the best!

GR Gopinath is the founder of Air Deccan.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow