May Newsletter - 2018

Estimated reading time: 8 minutes 39 seconds


Symptoms - The tendency to judge a decision by its eventual desired outcome instead of judging it based on the quality of the decision at the time of making the decision. 

An example - Baron and Hershey in 19881 had presented a hypothetical case to subjects, to rate the quality of a surgeon's pre operation decision. The subjects were presented randomly with a good outcome (living) or bad outcome (dying). The result was that those who were presented with bad outcomes rated the quality of the decision as bad and worse than those presented with good outcomes. 

Steps to correcting the bias - To avoid the influence of outcome bias, one should evaluate a decision by ignoring information collected after the fact and take in to account only the information that was readily available at the time of the decision.


Difference between a regular and a living will - While a regular Will is needed to distribute assets according to a complete estate plan after the death of a person, a Living-Will helps in communicating the person's own end of life decisions. Many terminally ill patients realise that they don't want to die at a hospital with their bodies hooked to machines in an ICU and through the Living Will, individuals can specify that they don't want any resuscitation if the death is apparent and medication is of no use. 

Conditions for a Living-Will 

A person making a Living Will needs to be in a healthy and sound mind, and capable of conveying his decisions clearly. The Living Will should be made voluntarily and should not be forced or made under the influence of someone else. 

The individual needs to mention that he understands the consequences of his decisions. Then, he needs to specify the circumstances under which he would like the life support to be withdrawn. 

The person needs to appoint a person/persons who has/have been commununicated clearly on what decision to take on behalf of the latter when terminally ill and need to check if he/they is/are comfortable with the decisions. 

An individual needs two witnesses to sign the document and have it countersigned by the judicial magistrate of first class (JMFC). The official (JMFC) will keep a copy of the Will and forward another copy to the registry of the district. 

The doctor can proceed with the withdrawal of life support if the Will mentions it only after checking with JMFC about the authenticity of the Will. 

A Living-Will can be changed due to a change in living conditions, demise of persons, cessation of relationship etc. and follows the same procedure of updation like a regular Will. 


The Securities and Exchange Board of India (SEBI) sold two properties for nearly Rs.8 crore in the Pancard Clubs case. SEBI had ordered the company on Feb. 2016 to refund over Rs.7,000 crore to investors, raised through illegal collective investment schemes (CIS) to the size of Rs.7,035 crore from 51,55,516 investors from 2002-03 to 2013-14. Subsequently on the company's failure to return back, the markets regulator had initiated recovery proceedings in the case and attached the properties belonging to the firm and its directors. 

SEBI has deferred its plans to allow Indian mutual funds (MFs) to be sold through 'passporting'. Passporting would have allowed domestic schemes to be sold in Asian countries without the need for regulatory clearance from that country. Once part of it, Indian MF schemes could be sold elsewhere without the fund house having to register separately with the regulator of that country or setting up a subsidiary in the jurisdiction. Conversely, schemes of these countries will be allowed to be sold in India. 

In a new circular released on 10th April, Sebi has prohibited an Indian origin person from owning more than15% in a foreign fund, if it is a partnership and 25%, if the fund is structured as a company. The regulator has said funds that do not meet the criteria cannot take any fresh derivative positions after the expiry of the April contracts and if the funds fail to meet the requirement within six months, they will have to unwind all existing positions and exit the Indian markets. Until now, foreign funds could not be registered as an FPI (Foreign Portfolio Investor) if an Indian or a group of Indians own 51% of the fund.


Diversification at the asset level and diversification at the portfolio level inside an asset class ensures that the portfolio has a lower risk than a non-diversified portfolio. 

Many investors assume that risk is proportionately reduced with each additional stock in a portfolio whereas there is strong evidence that risk can only be reduced to a certain point beyond which there is no further benefit of diversification. 

Besides, if the portfolio has more than 30 stocks/securities, then the weightage per share will be on an average less than 3.33%. This could mean low weightage to high return stocks. A portfolio of too many constituents may indicate less conviction on own research. It could also indicate a passive approach and Benchmark dependency. In the long run, an overdiversified portfolio fails to generate even benchmark returns which would mean wastage of resources like money and time. The latter is especially irreplaceable. 


Apparel exports in March have fallen 17.78% to $1.49 Bn, with an overall dip of 3.83 per cent to $16.71 Bn in 2017-18, the Apparel Export Promotion Council (AEPC) has said. The APEC also said that apparel exports are not only stagnating but are heading towards a recession. Apparel manufacturing has already registered a decline for the tenth straight month in February," said HKL Magu. Chairman, AEPC. Though India is struggling with the problem of stagnation in exports, countries such as Bangladesh and Vietnam are showing consistent growth in apparel exports. 

Unlike some sectors, India exported a record 2.8 million (M) motorcycles in the 2017-2018 financial year, a 20.3% Y/Y growth. At 2.48 M, ~89% of the exports were motorcycles, with scooters making up 11% (7% Y/Y increase in exports) or 314,307 units. Honda alone accounts for three out of every five scooters exported from India and a 16.5% Y/Y growth. In the motor cycle category, Bajaj exported 1.39 million units of motorcycles, a 56% share of total motorcycle exports and a 15% Y/Y growth 

Vedanta's resolution plan for the debt ridden Electrosteel Castings involving a total equity and debt infusion of Rs.5,320 crore after which the existing shareholders of the insolvent company will be reduced to holdings less than 10% equity, has received approval from the National Company Law Tribunal. A wholly owned subsidiary of Vedanta will subscribe to the share capital of Electrosteel for Rs.1,805 crore, according to the stock exchange filing. The remaining 10% will be "held by Electrosteel's existing shareholders and the financial creditors who receive shares in exchange for the debt owed to them." The Vedanta subsidiary will infuse Rs.3,515 crore via debt. The funds received will be used by Electrosteel to fully settle debt owed to financial creditors. Electrosteel Castings had owed a debt of more than Rs.13,000 crore-about Rs.5,000 crore to State Bank of India. 


IMF sees world economy weaker post-2020, after lifting the 2018 and 2019 forecasts for global growth to 3.9%. The fund predicted that the world economy's strongest upswing since 2011 will continue for the next two years, but then warned that the world economy will slow down due to the potential rate tightening, US fiscal stimulus withdrawal and increasing China slowdown. 

Walmart is nearing a deal to acquire a majority stake in India's leading online retailer, Flipkart. It is expected that the deal would value Flipkart at about $20 billion and Walmart is looking to acquire a stake of at least 60%. 

San Francisco Federal Reserve Bank President John Williams said that he expects U.S. inflation to rise to 2% Fed's target this year and stay at or above that goal for "another couple of years," even as the Fed continues to raise interest rates. This would mean short term rates could go above 3% in the next 2 years which is currently the yield on US 10 year bonds. 

The 10 Year US Bond touched yields of 3% on 24th April for the first time since 2014. Analysts fear that a continued stay at above 3% would trigger further rise in yields for the longer term securities. 


E-way GST bills will be mandatory for intra-State trade in respect of six more States from April 20, the six States are Bihar, Jharkhand, Haryana, Madhya Pradesh, Tripura and Uttarakhand, according to Mr. Sushil Modi, Chairman, Group of Ministers on GST. The extension of the intra-State e-way bill to six more States signifies that all States may get covered within the next one month even for movement of goods within the State. However, it is only when large manufacturing States like Tamil Nadu and Maharashtra come on board that the system will get truly tested. E-way bill system for intra-State movement of goods was implemented from April 15 in Andhra Pradesh, Gujarat, Kerala, Telangana and Uttar Pradesh. Along with the six new states, Karnataka is also implementing the intra-state E-way bill this month.

GST collections averaged just under Rs.90,000 crore a month in the first eight months after the rollout of the levy, adding up to Rs. 7.19 lakh crore in the year ended March 2018. The average monthly collection under GST for FY18 was around Rs.90,000 crore, a deficit of approximately 24% in reference to the estimations for FY 19. However, with introduction of e-way bill and better compliance, the coming monthly figures are expected to pick-up.

The International Monetary Fund (IMF) has maintained its forecast for India's economic growth at 7.4% in 2018-19 (FY19), which will again make the country the fastest-growing large economy after losing this tag to China by a close margin in 2017-18. 

India's overall goods exports increased 9.78% to $302.4 billion in April-March 2017-18, but declined 0.7% to $29.11 billion in March 2018. The Gems and Jewelry Sector reported a 16.6% Y/Y decline in exports to $3.4 Bn due to a banking scandal that has affected the working capital needs of the nation's jewelers, who are involved in cutting or polishing 12 out of 14 diamonds sold globally. 

Trade deficit for the financial year ended March 2018 widened 45% to $156.8 Bn. The trade deficit was at $13.7 Bn in March, climbing from $12 billion in February-18. Imports grew 7.2% to $42.8 Bn. Oil imports rose 13.9% to $11.1 Bn and Non-oil imports gained 5% to $31.7 Bn.


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