Petroleum Politics: US v/s OPEC

On January 10, 1901, an enormous geyser of oil exploded from a drilling site at Spindletop Hill in Texas, USA. Reaching a height of more than 150 feet and producing close to 100,000 barrels a day, the “gusher” was more powerful than any previously seen in the world. Oil erupted for nine days before it could be brought under control with the technology of the time. Although, oil was first discovered in America in 1859 by Colonel Drake, known as the father of American Petroleum Industry, the discovery of the Spindletop geyser in 1901 is considered to be the start of modern oil age.
Within a year, more than 1,500 oil companies had been chartered in US, and oil became the dominant fuel of the 20th century.

With the technological breakthroughs of the 20th century, oil emerged as the preferred energy source. The key drivers of that transformation were the electric light bulb and the automobile. Henry Ford started the commercial production of Model “T” automobile in 1908. This was the world’s first inexpensive, mass-produced car.

As oil was first commercially extracted and put to use in the United States; consequently, pricing power for the fuel lay with the United States, which was, at that time, the largest producer of oil in the world. The dominance of the United States during the first half of 20th century is illustrated by the fact that regardless of where oil was produced in the world, its price
was fixed at that of the Gulf of Mexico.

Beginning with World War I, oil became a strategic energy source and a tremendous geopolitical prize. In 1919, however, the U.S. Geological Survey estimated that U.S. oil supplies will run out in ten years, triggering the country’s first oil security fears. Though the United States produced roughly one million barrels of oil per day, or 65 percent of global oil supplies, more than 90 percent was consumed domestically. Following British and French attempts to shut U.S. oil companies out of regions they controlled in the Middle East, the U.S. government began active oil diplomacy in the late 1920s, insisting on an ”open door” policy that would allow all companies to compete for foreign concessions regardless of national origins.

In the 1930s, Gulf Oil, BP, Texaco, and Chevron were involved in concessions that made major discoveries in Kuwait, Saudi Arabia, and Libya. Based on those discoveries, a cartel of seven companies was formed that controlled the world’s oil and gas business for much of the twentieth century. Known as the Seven Sisters, they included: Exxon (originally Standard Oil), Royal Dutch/Shell, BP, Mobil, Texaco, Gulf, and Chevron. Five out of these seven companies were American.

Oil production in America was not able to catch up with the fast pace of industrial development. American reliance on imported oil, which began during the Vietnam war, increased further during the economic boom period of the 1950s and 1960s. Here’s a snapshot of America’s dependence on imported oil since the 1940s:

* in the late 1940s, for the first time, the US began to import oil
* in the 1950s, 10% of US oil consumption was imported
* in the 1960s, 18% of US oil consumption was imported
* in 1973, the share of imports in US oil consumption reached 30%
*By 1977, share of imports in US oil production increased to 50%

America’s dependence on imported oil provided Arab countries and OPEC (which had been formed in 1960 to counter the hegemony of Western oil companies) with increased leverage to influence oil prices. The Seven Sisters controlled much of the oil market till the early part of 1970s. However, the 1973 oil shock swung the pendulum in OPEC's favour. That year, in response to U.S. support for Israel, OPEC and Iran stopped oil supplies to the United States. Further, events like the disintegration of the Soviet Union in 1991 and Asian Economic Crisis in 1997 helped OPEC strengthen its control over oil prices.

OPEC presently holds 40% of the world’s conventional oil reserves and has the world’s lowest barrel production costs. This enables it to have a wide-ranging influence over oil prices. Thus, when there is a glut of oil in the world, OPEC cuts back on its production quotas. When there is less oil, it increases oil prices to maintain stable levels of production.

In the last 3 decades, The Shale Industry in the US has been able to increase production to a major extent, which has reduced US’s dependence on imported oil. Shale oil is generated in Shale rock through processes like Pyrolysis, hydrogenation and thermal dissolution. Extraction of oil from Shale Rock formations, however, is costlier. Shale oil drilling in US picks up only when crude oil prices are expected to sustain above $60 for a long period. The significant fall in crude prices during 2014 to 2017 forced many shale oil producers in US to shut shop. Presently, US imports 20% of its oil demand.

To conclude, regions that hold pricing power over oil control vital levers of the world’s economy. Conspiracy theories in political circles widely acknowledge that the wars such as Persian Gulf war, US’s movement of troops to Saudi Arabia to forestall invasion, Iraq wars, etc. had control over oil production and prices, rather than “preservation of democracy” and
religious reasons as the main intent. The United States controlled oil prices for a major part of the previous century, only to cede it to the OPEC countries in the 1970s. However, the technological advancement in extraction from Shale Rock formations might shift the power back to US in the years to come. Also, US’s focus towards greener resources of energy might tilt the balance in future.

Our investment Adviser, Anurag Roonwal penned his thoughts about Petroleum Politics.

Poker Face – A Strategy

Poker Face – A Strategy
noun
An impassive expression that hides one’s true feelings.

Movie:
My introduction to this concept was in my early childhood. One of my favorite book and movie is ‘The Godfather’ written by Mario Puzo. I was fascinated with it, enthralled by dialogues such as ‘It’s not personal; it’s just business’, mimicking them in my not so great Italian ascent. But the most important thing I took away from the movie is how not to negotiate. They show that sunny (godfathers firstborn) showed his interest in a drug deal which the Godfather refused; which resulted in godfather being shot. This is what I took away from the movie. In Business whether it’s your colleague, boss, client or vendor they should never know your thoughts. You should be impassive at all times, this is absolutely critical during times of negotiations. If the opposing party can determine high level of interest, the price if not going up will at least not budge from the current price.

Game:
We cannot discuss poker face as a strategy without discussing poker. If godfather introduced me to this concept, poker developed it. Poker is different from the other gambling games i.e.  you do not play against the house, you play against each other. The best way to describe poker is you don’t play the odds, you play the man. The biggest test in poker is your
opponents should not be able to read your thoughts & game. Bluffing in poker and catching a bluff in poker is a tremendous negotiation skill to have. It requires two things – acute observation and absolute control on one’s expression. This is one art which all the negotiators need to master.

 

The Corollary:
The corollary to having a poker face is being observant to others, deciphering their motives through their expressions & behavior. Reading people is an art which helps you not only in business but in all aspects of life. The observation prowess helps you go into detailing of each aspect of your business. You need not be the most brilliant person in order to be the best communicator. You can have a more successful meeting by changing the agenda of the meeting by seeing the client’s reaction.

The Conclusion:
Poker face & observation are like yin & yang, they are incomplete without each other. You can pickup, develop and hone these skills not only in the business world but also by doing things you like i.e. playing poker, reading books and watching movies!!
For me this is the single most important quality I would look in the person whom I appoint to negotiate on my behalf. What about you?

Contributed by guest author Shreyam Shah, CEO Tee Venture (India) Private Limited.

 

An overview on the Indian market roller coaster

Following my colleague Siddhant Shah’s overview on the markets extra-ordinary rally in July, let’s have a look at how the markets have fared in the past few months. My colleague left us speculating whether the rally was sustainable and backed by an uptick in value, or was it another bull run driven by market sentiment. Let’s find out what followed…

NIFTY at 11000 Levels

The Indian equity market was trading at lofty valuations because of high liquidity in the market from DII’s and individual investors post demonetisation. Being amongst the top emerging countries with government revamp plan to bring various new policies and amend the existing ones for ease of doing business attracted foreign inflows too.

 

Global woes with domestic liquidity crunch

The boiling of crude price, depreciation of rupee, Fed rate hike along with US-China tariff war, and ballooning current account deficit in India were not the only concerns for market to correct. In August end and early September, ICRA, CARE and Brickwork Ratings, and other rating agencies downgraded IL&FS group’s various long and short-term borrowing programmes worth over Rs 12,000 crore to ‘default’ or ‘junk’ grade. This created liquidity fear in the debt market.

The above mentioned global worries created sell off pressure by Foreign portfolio managers dragging the Indian market further.

Further, in second half of September,DSP mutual fund sold commercial paper of Dewan housing at a higher yield indicating further liquidity crunch in debt market. This led to a contagion effect in the equity market.

Why are NBFC and HFC stocks under pressure?

NBFCs and HFCs have raised significant borrowings from debt schemes of Mutual funds. A further default will trigger sell off button from fund managers and retail investors putting pressure on equity markets too. This panic would eventually lead to corporates redeeming their investments in debt schemes of mutual funds which would further add pressure on the NBFCs and HFCs.

Rift between RBI and Government with looming State and Central elections

The rift between the RBI and Government has also created extremely bearish narratives. However, softening of crude prices and halt in Rupee’s depreciation along with rising foreign indices are reflecting on Indian markets.

Various State elections are due in this month and the results to be announced in December and Central elections in May 2019are key events in a near future.

Mixed sentiments would continue till Central elections with market volatility to increase further as the events draw closer.

Do long term investors need to worry?

The market sentiments have been impacted by tightening liquidity on account of global and domestic factors enumerated above. The growth in cement volume, uptick in sale of Commercial vehicles and increase in casting volume in this result season are some of the early indicators of turning of Indian economy implying long term bull outlook to remain intact.

Wealth Mantras:Adding on dips would act as catalyst for long term investor in volatile market. Stay invested in quality stocks.

Moneybee group wishes you and your family a happy Diwali and prosperous new year.

A quick market overview by Hardik Solanki, Investment Adviser, Moneybee Investment Advisors Private Limited

What if Shri Narendra Modi runs your business?

         What if Shri Narendra Modi runs your business?

You may be a believer or a non-believer, a follower or a critic – but one thing everyone must agree that Mr. Modi is a master manager and knows how to run the show. He will surely go down in the history!

Have you ever wondered if we can apply Modism to your day to day decision making? How does it affect our HR policies, financial planning, marketing, technology, laws, competition and various other matters.

As a Growth and Turnaround Advisor, here are few interesting Modisms that we can try and apply in our businesses.

Modism No. 1: Outside capital can spur and revive current business

Money is to business what blood is to our body, free circulation of both is very much necessary in the life. Modi recognized this principal very early. During his term as, chief minister in Gujarat he knew that fiscal deficits is something the nation should work on.Reviving India`s fledging economy constituted the central theme of Mr. Modi.  He focused on attracting Foreign investments in India by initiating the Make in India scheme in September 2015, announcing the ease of doing business allowing 100% FDI in almost all the sectors.Taking this into mind, a businessman must plan the cash flow in order to stay on the field for the long run. One needs to strategize the outflow based on the requirements at the same time always check the inflow equity vs. debt.

Modism No. 2: Hire the right man for the right job!

Every Business follows a plan even if it’s not written down in a document. But developing and implementing strategic change needs a team who can execute the way it is required. Mr. Modi is a visionary and a hardcore strategist. One would be aware of how Mr. Modi successfully headed the Pragati Project where as many as 180 out of 350 stalled projects in the states in key infrastructure areas which were delayed for several reasons for a period of 4 to 15 years were on track again. This was done with the help of dedicated team of cabinet secretary P.K. Sinha, who reviewed various delayed projects in the centre and placed for discussion on the Pragati portal based on their relevance. This helped Modi to speed up the infrastructure in India. In business one should take a note that hire the best man for every job.

Modism No. 3: Back your team

सरकार वो ही, मुलाजिम वही, दफ्तर वही, फाइल वही, आदत वही, लोग भी वही। काम हुआ कि नहीं हुआ

Mr. Modi has been in the forefront when it comes to developing skill sets amongst the citizens of the country. To get the work done one needs to solve the problems faced by the employees for their smooth functioning. Mr. Modi knew that the grievance redressal team was stacked with a backlog for various reasons. When went into the roots he realized that the team was divided into 2 areas due to lack of space and physical processing slowed down the processing of petitions.Within few months the process to free up the space to integrate the team was done and online petition platform was formed which reduced the processing time as well as helped to move toward paper-free environment. In the same manner one should help all the employees in every department of the company to develop essential competencies so that they can work efficiently and effectively and also motivate and encourage the young managers and leaders of the company which will help the company to have a sustainable growth for the future.

Modism No. 4: Use technology to eliminate middlemen

Procurement has always maintained an essential role in the business and has a link to the business success, whether by reducing cost or by sourcing for key material for the organization’s operation. Recently, the role of procurement has become more critical in the ever-increasing competitive market to be cost effective.  Just like he has eliminated the need of middlemen by connecting the producer and buyer by creating a marketplace. This should be replicated in the company’s business model by which the total cost of procurement of products and services will considerably go down.

Modism No. 5: Market Market Market!

Marketing serves as the face of the business. Everything in the business depends on marketing. No sales equals to  No company. One needs to develop a brand by promoting the product and creating awareness among the customers. This will give a competitive edge in the industry. The best example is Make In India which he promoted during his foreign trips by holding meetings with businessmen of the countries concerned. He globally promoted and increased the brand equity of India.

Modism No. 6: Take decisions and be persistent

Willpower is that inner fire that gets you past the naysayers, obstacles, challenges and inevitable failures.  No one can give it to you, and no one can take it away. Use it as you see fit.  Mr.Modi`s willpower and vision in making India bright and puissant has helped him to grow. With all his strong desire and decision power he is attracting the world towards India. There are always ups and downs in the business. This can be overcome if one has the willpower to go ahead and tackle the situation.

Modism no.7 Simplicity:-

No matter how complex a task, break it down to the simplest elements!

Thus, if our Respectable Prime Minister were to run my business then there is no doubt that the business will witness a sound and steady growth while satisfying all stakeholders like customers, employees and suppliers. He will be successful in creating a sustainable and robust business model. We would love to hear your thoughts on some of the modism that can be effectively put to use in day to day businesses.

This article is penned by Khushbu Gandhi, Investment Adviser, Moneybee Group.

Vehicle Scrapping – What, Why & How?

The Indian Government has decided to scrap commercial vehicles older than 20 years which can be upto 700,000 units in a year.. The current total Indian CV capacity is 3.5mn vehicles and this program will benefit OEMs and Auto Ancillaries emmensly.

OEMs to benefit:

  • Tata Motors – 44% market share in MHCVs
  • Ashok Leyland – 34% market share in MHCVs
  • Volvo Eicher Commercial Vehicles – 5.2% in Heavy Duty Segment

Auto Component manufacturers to benefit:

  • Wabco India: 65% revenue from M&HCVs
  • Jamna Auto: 85% market share in leafsprings with OEMs
  • Setco Automotive: 85%+ OEM market share in clutches in MHCVs
  • Harita Seatings: 18% of the business comes from MHCVs
  • Bharat Forge: 15% market share in OEMs in MHCVs
  • Bosch: 26% contribution from Indian OEMs in MHCVs

Older vehicles, typically more than 10 years of age and pre-BS I compliant, constitute 15% of the total fleet but pollute 10-12 times more than a new vehicle because of drastic change in pollution norms, thus, there is an urgent need for implementation of this scheme.

 

 

 

 

 

 

 

Fuel efficiency

The program will result in improvement in fuel efficiency with the new vehicle replacement. This would lead to lower oil consumption to the tune of 3.2 billion liters per year translating. Crude oil import savings will also be higher to the tune of Rs 7,000cr. MHCVs (both buses and trucks) will account for ~55% of these fuel savings.

Benefits OEM Suppliers

The policy would boost sales of OEMs leading to higher production capacity utilisation and the automobile manufacturers would support the government in this initiative “financially by giving special discounts to customers buying vehicles under this scheme”.

Scrappage policy expected to come in by Apr-20 will be a major growth driver for the CV industry. 200‐250K vehicles will come under the ‘over 20 years’ scrappage policy while in case of a scrappage policy for vehicles older than 15 years, ~600‐700K units will need to be scrapped.

Besides reducing emissions, it generates steel scrap worth Rs. 11, 500 annually, reducing steel import burden.

Though manufacturers are lauding the move, they say the impact will play out over two to three years. According to them, transporters are unlikely to rush to buy vehicles immediately.

How the policy will be implemented?

The programme will follow a structured implementation and execution process, coordinated between the vehicle owner, the recycling and shredding center, OEMs, dealers and government representatives.

Implementation Hurdles

Change of hand

Given that commercial vehicles change hands two to three times during their lifecycle, the government has to work out ways to issue tradeable certificates which would incentivize the last owner to scrap the truck and subsidize the purchase of the primary buyer. This will in turn create a win-win situation for all stakeholders and make the overall dynamics of commercial vehicle trade more vibrant.

Incentives

Levers Proposed Scheme
Scrap Value Part of scrap value from old vehicle to be given as payback
OEM Discounts Special discounts to be given as incentive
Excise Duty Upto 50% ecxcise duty to be passed on as incentive

Fragmentation

The CV industry remains heavily fragmented, unorganized and very rough in nature. The fleet owners are heavily fragmented in India, with more than 80% of the fleets owned by people having less than 10 vehicles, which gives birth to the intermediaries. There are multiple entities involved in the entire transaction and multiple activities happen in the background before the vehicle can actually be in-transit.

Infrastructure required

The most critical enablers required for smooth implementation of this programme are robust IT infrastructure (ensure measurement of programme effectiveness through MIS generation) and setting up of Recycling and Shredding Centers.

 

Global practices

Scrapping of End of life vehicles is carried out all across the world wherein vehicles are shredded and the metal content is recovered for recycling, while in many areas, the rest is further sorted by machine for recycling of additional materials such as glass and plastics. Approximately 10 million vehicles are recycled annually. The successful ones in the CV space have been Japan and Germany, where post the incentivization scheme, truck sales increased by 9% and 17% respectively.

Currently, 75% of the materials are able to be recycled. As the most recycled consumer product, end-of-life vehicles provide the steel industry with more than 14 million tons of steel.

Moneybee View

New vehicle purchases will be even lower

Over 20-year old trucks normally ply in rural areas (national permits are typically for 12 years, state permits for 15 years) as vehicles with high operating costs are not viable on long distance routes. Consequently, it is unlikely that these operators will purchase new vehicles to replace the older ones. While new purchases may lead to higher replacement demand in the long term, in the near to medium term (i.e. after 2020), the impact could be limited. This is because any incentives of buying a truck may eventually flow through to fleet owners that were already looking to purchase new vehicles.

 

Long way between now and 2020

The policy has yet to be approved by the GST council. Further, we believe there is a high possibility of the policy shifting between now and 2020, considering the election cycle in 2019 and likely lobbying in the interim. A similar policy with detailed calculations was floated about 2 years ago (with age criterion at 15 years). Hence, we would be surprised if the scrappage policy were to be implemented as currently envisaged.

 

Conclusion

Overall, while the policy is a step in the positive direction, the boost to volumes could be limited. Adoption of BS VI standards by itself will reduce HDV emissions in India, but the near-term benefits are restricted because older, poorly maintained vehicles will still contribute most of the in-use fleet emissions in the near-term. Both direct and indirect subsidies are key in supporting a scrappage program, as is the early introduction of the cleanest vehicles available. Sufficient financial subsidies, offered by government and manufacturers, can reduce, or even eliminate the price gap led by the technology improvement between BS IV and BS VI vehicles.

This article is penned by Sneha Prashant, Investment Adviser, Moneybee Investment Adviser Private Limited. For more details please call on +91 22 4030 2090

Is Aviation a good bet?

Airlines, although being the fastest mode of transport and forming an integral part of modern life, is still struggling in the race towards sustainable and profitable growth. Right from 1991, when the Government de-regularized the civil aviation sector, the Airlines sector has struggled to stay in the green. Although, today India has the fastest growing aviation sector in Asia, clocking CAGR of 12% over FY06-17, most of the domestic airlines are bleeding. The sector finds itself engulfed in myriad of problems including inadequate infrastructure, lack of affordability, cut-throat competition, not to mention high crude oil prices and forex fluctuations, all of which have hampered the sector’s health since the last two decades.

Currently just 2% of India takes to the skies. The Government is taking steps to speed up the pace of infrastructure development in the country. Finance Minister Arun Jaitley announced the Government’s intent of increasing airport capacity by 5 times in the next few years.

Challenges faced by the aviation sector

  1. Fuel Cost and Foreign Exchange: The biggest hurdle in aviation sector is the high cost of aviation turbine fuel which constitutes 35-40% of the total operating cost of the airlines. ATF Prices in India are 60-70% higher as compared to global peers Further due to cut throat competition and consequent price sensitivity among the travellers, airlines are unable to pass the cost of ATF prices to the customers.  Since India is a mainly Fuel deficit country, foreign exchange fluctuations directly impact the operating costs of the airlines.
  2. Passenger load Factor: Aviation business being capital intensive in nature and having high fixed costs, the efficiency with which airlines utilise their assets is the key to generate adequate return on investments. Higher Passenger Load Factor (PLF) helps in increasing revenue and profitability. Airlines in India have thus focused majorly in tier 1 cities where the PLF has been approx. 80% as compared to tier 2 and 3 cities where it has been 50%. Due to high fixed costs, operating on low PLF routes is non viable for airlines and thus India is largely under penetrated by the aviation sector.
  3. Lack of adequate Infrastructure: India’s aviation sector needs a big push on the infrastructure front. All the major airports are severely congested with the situation to only worsen in next few years.  India’s domestic air traffic nearly doubled to 117 million passengers in 2017 with 100 flights taking off every hour compared with 67 in 2011. Besides these issues, airports lack sufficient flight slots and airport parking bays. Lack of significant thrust to infrastructure poses would derail the hyper growth (above 20%) that the Indian airline industry is currently experiencing.

Vision 2020

To tackle these challenges, the government is proactively working on schemes to revive this sector. They have emphasized on tier-2, tier-3 cities where the next round of growth would come from. India’s smaller cities have so far remained neglected with very little connectivity. Airports in small cities or towns like Kanpur in UP, Cooch Behar in Bengal, Nasik in Maharashtra, Mysuru in Karnataka along with Puducherry are only few among the list of airports that are currently out of country’s air-map.

UDAAN Scheme (Ude Desh ka Aam Nagrik)

This scheme, launched by the Government in 2016 aims to make flying accessible and flexible to millions of Indians in the tier-2 and tier-3 cities by promoting airlines to fly these virgin routes.

Under this scheme, airlines will have to sell some of their seats (9-50) at a cost no more than 2500 per hour of flying, for which they will be compensated by the government. This will also boost tourism and business travel.

In order to encourage the airlines, the to operate, the government provides for a three-year monetary support in the form of Value Gap Funding(VGF). The VGF will be used to bridge the gap between the cost of airline operations and expected revenue. Airline operators would be extended VGF estimated to be around Rs 205 crore per annum for the operators chosen in the first round of bidding. So far, 19 States and three union territories have signed a MoU for this purpose. Also, the states participating under this scheme

will be providing sufficient land available; ensure adequate security; and provide essential services at concessional rates for the airports or airlines as this is one of major cost travelling in smaller cities. The Centre and States will bear the VCF cost in the ratio of 80:20. A total of 109 airports and heliports around the country have been awarded to various airlines and helicopter operators under the second round of bidding under the UDAAN scheme.

Indian Investor Perspective

Imagine having invested Rs 100 each in March 2005 in the following:

Let’s discuss a couple of listed stock and their probable future outlook:

Interglobe Aviation – God of Aviation sector

  • Only airline in India to be profitable for the last nine years.
  • Market leader in one of the most under penetrated market (India) – 40% share.
  • Strategy of ordering bulk purchase order of single type of aircrafts helped in reducing ownership cost, cost of maintenance, staff training cost and capex cost. Also, new fleet of vehicles keeps fuel cost lower as compared to peers.
  • On-time performance ensured high passenger load factor.
  • With strong share in the market and cost leadership the stock seems to be good stock in the aviation sector. However, in the near term, we would watch out for (a) impact on profitability led by fare-war, (b) capacity addition by competition and (c) crude oil price trend.

SpiceJet – Turnaround story

  • From the verge of bankruptcy, SpiceJet has navigated well upward in the last two years.
  • Company was making losses since its acquisition by Sun group in 2010. It became worst when oil companies refused to refuel SpiceJet airlines due to payment issues.
  • The reason for the fall was that the company was flying fewer flights to large number of stations with no return flights on the same day and high cancellation of flights leading to customer dissatisfaction.
  • Turnaround
  • Company was on the verge of bankruptcy when Ajay Singh acquired the company in 2015 for just Rs 5.
  • He focused on the critical issues like managing cost, utilizing assets and managing cash flows.
  • His strategy was to follow the low-cost model and focused on becoming an affordable model thereby winning customer loyalty.
  • Company which was making a loss of Rs 687crores and had a negative net worth of Rs. 1265crores in FY15 turned into profit of Rs.430crores in FY17.
  • SpiceJet is also awarded with few sectors under- the Udaan scheme and is focusing to capture non-trunk areas. Also, they have ordered for 50 Bombardier Q400 aircrafts for the same. It is expected that the company will see 5-7% growth in topline with the aid of this scheme.
  • The stock has gained more than 8x since the change of company`s management. Looking at the turnaround, the company has the potential to match the level of Indigo. In the near term the stock looks attractive, however the volatility of fuel prices and short vision of Udaan scheme makes the stock risky in long term.

Aviation sector is ready to take off due to the NDA governments aggressive push and higher connectivity, but the sector faces a lot of systemic risk in India. It is our belief that in future and with Udaan schemes fares shall further fall. In short term though few stocks may look interesting, we don’t see any potential in the long term to invest in Aviation Stocks.

This report is for discussion purpose only and does not give any buy/ sell recommendation.

This report has been penned by Khushbu Gandhi, Investment Adviser, Moneybee Investment Advisors Private Limited. For more details you can contact her on +91 4030 2053

Highlights of the Union Budget 2017 – 2018

  1. FIRSTS
  • This was the first time The Budget was declared on 1st February
  • First joint budget Railway and Union Budget
  • First Paperless budget
  • First budget that does away with Plan and non-planned expenditure
  1. DIRECT TAX
  • Individuals:
    • Income upto 2.5 Lakhs – Nil Tax
    • Income above 2.5 Lakhs to 5 Lakhs – tax reduced to 5% from 10%
    • Income above 50 Lakhs – 10% surcharge
  • Corporates:
    • Companies with annual turnover of upto Rs 50 crore – 25% Tax
    • MAT credit allowed for a period of 15 years instead of 10 years
  • MIS on Tax Returns Filed:
    • Total number of people filing tax returns – 3.7 crore
    • Income below 2.5 lakhs – 99 lakhs
    • Income between 2.5 lakhs to 5 lakhs – 1.95 crore
    • Income between 5 lakhs to 10 lakhs – 52 lakhs
    • Income above 10 lakhs – 24 lakhs
    • Out of the 76 lakh people with income above 5 lakh, 56 lakhs are salaried class
  1. ACTIONS POST DEMONITIZTION
  • From 8th November to 30th December 2016

Deposits between Rs 2 lakhs to Rs 80 lakhs – 1.09 crore accounts; Average Deposit – Rs 5.03 lakhs

Deposits above Rs 80 lakhs – 1.48 lakh accounts; Average Deposit – Rs 3.31 crore

  • Banks have targeted to introduce 10 lakh new PoS terminals by March 2017 and 20 lakh Aadhar based PoS by September 2017
  • 125 lakh people have adopted the BHIM app so far.
  • A Mission will be set up 2,500 crore digital transactions for 2017-18
  1. EASE OF DOING BUSINESS
  • Foreign Investment Promotion Board to be abolished in 2017-18
  • Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision.
  • Assesses with receipts upto Rs 50 lakh are given a benefit of paying advance tax in one instalment instead of four under the presumptive taxation scheme
  1. Political Funding
  • Maximum donation of Rs 2000 in cash from one person
  • A donor could purchase electoral bonds from authorised banks against cheque and digital payments only which are redeemable only in the designated account of a registered political party.
  1. Disinvestment
  • The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges.
  • The government will continue to use ETF as a vehicle for further disinvestment of shares.
  • Divestment of PSUs target – Rs 72500 crores
  1. Industry Specific
  • Low Cost Housing given the status of Infrastructure
  • 100% village electrification by 1st May 2017..
  • To make India a global hub for electronics manufacturing a provision of Rs 745 crores
  • Proposed to set up strategic crude oil reserves at 2 more locations
  • Rs 10,000 crore for recapitalisation of banks
  1. Expenditure
  • Total Expenditure – Rs 21.47 lakh crores
  • MMREGA – Allocated Rs 48,000 crores
  • PMGSY – Allocated Rs 19,000 crores
  • Railway Budget – Rs 1.31 lakh crores
  • Highways – Rs 67,000 crores
  • Defence – Rs 2.74 lakh crores excluding pension
  1. ECONOMIC INDICATORS
  • Fiscal Deficit – Seen at 3.2% (17-18) & 3% (18-19)
  • Current Account Deficit – 0.3% (16-17) 1st Half