21 Day Lockdown (COVID-19) - Are We Headed in Right Direction cover

21 Day Lockdown (COVID-19) – Are We Headed in Right Direction?

21 Day Lockdown (COVID-19): Due to the outbreak of coronavirus, last week, the world witnessed the largest democratic lockdown of 21 days as announced by PM Narendra Modi on March 24th, 2020. As we enjoy the privileges at our homes for social distancing and take measures to avoid Coronavirus, a greater portion of Indian population struggles to take measures to ensure their survival. Today we take a look at the cost of such a lockdown and the possible future we are looking at.

There have been many views regarding the lockdown including the one put forward by Dr. Deepak Natrajan. He took estimates based on comparison with the cases in China and the respective death rate and after periodically adjusting for one year. Later, he arrived at the conclusion that the maximum of 25000-30000 estimated deaths in India due to COVID-19. This was done to bring up the comparison of the cost of the Lockdown.

Whether this 21-day lockdown would result in smashing the economy where a hundred thousand may lose their jobs is still a point of discussion. However, most economists are estimating this pandemic resulting in many more being affected by starvation in a country already facing poverty and malnutrition.

Dr. Deepak Natrajan went on to explain how the estimated deaths due to COVID-19 are a blip in comparison to the deaths caused in a year. The deaths in India currently stands at ten lacs per year. This also sheds a light on the dilemma faced by the government over imposition a lockdown. However, it didn’t mean that he encouraged the government to do nothing but instead opt for a different route which involved aggressive testing.

Immediate effects due to the 21-day lockdown

– Hoarding

This was the first problem noticed after the lockdown was announced as people immediately resorted to the hoarding of commodities. It was done to cover the next 21 days as it was unclear from the PM address over availability of essentials and the lockdown was mistaken as a curfew.

As always, hoarding causes problems of availability. The reduced commodity results in businesses trying to benefit from the added demand by hiking up the prices which further alleviates the problem. This further reduces the purchasing power of large sections of the economy for commodity at higher prices.

– Exodus of Daily Wage Workers

The 21-day lockdown eliminated all job opportunities available to the daily wage workers and other workers in the unorganized sector. Their situation got worse with no savings to fall back on and added hostility from the landlords who viewed them as a COVID-19 threat. This inability to pay rent also lead to the exodus where workers started their journey home hundreds of kilometers away on foot.

( Migrant Workers trying to find a way out in Delhi)

Although they were further portrayed by the media as an addition to the existing problem, this was the only way out for these bread earners to escape the problems caused by the 21-day lockdown. They started this march to avail government relief in the form of deposits in Jan Dhan saving accounts and foodgrains available to their families in their hometowns. Moreover, any attention given by the state government arrived only after the exodus had already begun.

Announced Relief Packages

A relief package of 22 billion was announced by the finance minister 36 hours after the lockdown. It involved 50 Lac insurance coverage to the healthcare workers, a move in the right direction. However, there were a few schemes part of the relief that raised a few eyebrows.

– Increased wages – MGNREGA

The Finance minister announced increased MGNREGA wage by Rs.20 to Rs. 202 per day effective from April 1st. The wage increase is said to provide additional benefits to the workers. The logic to announce this as part of the relief is hard to understand as during a 21-day lockdown the work provided through MGNREGA is non-existent. The benefit of can only be availed after April 14th provided it is not too late. Moreover, the Finance Minister added that the workers will have a benefit of Rs 2000. However, this will only be available considering that that MGNREGA worker is employed for 100 days in a year.

The added benefit also seems to be unsuitable as the weighted average for the 2019-2020 record is already Rs.221 in the MGNREGA scheme. The unweighted average in major states is Rs.226 per day. The additional benefit on a closer look does not offer any relief to daily wage workers during a lockdown and also depends on the availability of work after the lockdown. The period after this 21-day lockdown is stated by many economists as a period of recession. This is arrived at after taking into consideration of the rise in unemployment as one of its factors.

– Food and Cash in hands of people.

The Finance Minister announced that Rs 2,000 will be deposited into the Jan Dhan Yojana Accounts of Farmers. Further, Rs. 1,000 will also be deposited into the Jan Dhan Accounts of pensioners, widows and the disabled. The Government is also to provide 5 kg of rice and 1 kg of pulses in addition to the existing amount received for the next three months.

In 2017 the Pradhan Mantri Jan Dhan Yojana saw the women ownership of bank accounts rise from 43% to 77%. This indicated that most of the accounts in the PMJDY were those of the spouses of the workers in the cities. To benefit from the relief provided, the individuals will have to travel back home which adds to the exodus.

(Pronab Sen-Chairman of the Standing Committee on Economic Statistics.)

Apart from this, the government also announced a hike on the withdrawal limit of EPFO to transfer cash into the hands of unemployed individuals. The Finance Minister also announced that the center will pay the PF requirements of both the employee and the employer for 90% of the employees (for the firms with less than 100 employees of salaries less than Rs.15000).

– Moratorium on Loans

The RBI allowed lending institutions to offer a moratorium to borrowers on repayment of all loans for 3 months. The banks that have approved this includes Punjab National Bank, Union Bank of India, Bank of Baroda, Canara Bank, IDBI, State Bank of India (SBI), Indian Bank & Central Bank of India.

This move will reduce the burden on the individuals and also provide them the purchasing power for necessities.

– Reduction of Rates

The RBI cut the repo rate and the reserve repo rate by 75 bps and 90 bps. The repo rate now stands at 4.4% and 4% respectively. This will result in a fall in interest on deposits and make loans cheaper. This is aimed to increase the spending and hopefully stimulate the economy. However, this was also done to ensure the enterprises that are affected by the pandemic can get back on their feet and avail cheaper loans.

(Prem Shankar Jha – Economist )

If we take a step back from this very welcome rate cut and consider the state of the baking sector and their struggles with NPA’s, Non-Performing Assets (as in Yes Bank), it is hard to foresee banks lending to businesses that have been financially weakened due to the pandemic. Any loans given out would be a leap of faith and RBI must ensure that the benefit from rate cuts is transferred from the banks.

Lockdowns around the globe

Countries like Italy, Spain, and France have implemented a national quarantine. The total count of cases in Italy and Spain are currently over 100,000 and France over 50,000. The United States, having the most number of cases (over 210,000) has still not imposed a nationwide lockdown taking a different pill than that taken by India. The US has primarily focussed only on hotspots and 24 states have asked their residents to shelter at home.

China, which only a few months ago was one of the hotspots for Corona, imposed a lockdown but only in the hotspots i.e. Wuhan and Hubai (60 million people) which could also be one of the reasons why the stock market in China was not as badly hit as that of other regions. (Also read: Coronavirus Impact on Global Indexes (2020) – US, Europe & More)

However, these countries have followed aggressive testing measures. India, on the other hand, has one of the worst testing rates in the world with only around 43,000 tests conducted so far. This was despite having the capacity to conduct 12,000 tests per day. So far there have been 2000 confirmed cases in India. Countries like Korea have used rampant testing measures like ‘Drive-Thru Coronavirus testing centers’ to flatten the curve to total cases. This has enabled them to catch up with the spread and quarantine effectively.

Also read: What we can learn from South Korea and Singapore’s efforts to stop coronavirus?

Relief Package Comparison with GDP

The relief package announced by the US is at 2 trillion dollars to fight the coronavirus. A comparison of the $22 billion relief package in India would be unfair. When the relief packages are compared to the respective GDP’s, it showed that $2 Trillion is roughly 10% of the US GDP. Other countries like Canada, Singapore have roughly invested around 5% of their GDP’s. However, India has rolled out a package of just 0.8% of its GDP to fight coronavirus outbreak.

This comes after former Finance Minister P. Chidambaram mentioning in his ten-point plan of action that a minimum relief package of Rs 5-6 Lac Crore was required. Despite that, he didn’t see an economic recovery on the horizon and also termed the COVID-19 lockdown as the biggest crisis the country has faced. Even after the migration crisis post-independence, every famine since independence, the tsunami of 2004, the 2008 financial crash are all put together. This further puts doubt on the capabilities of the relief package.

Is the Indian economy headed towards a recession?

The IMF has already stated that the situation worldwide is worse than the crisis of 2009. They also mentioned that we have already entered a recession and a possibility that the global GDP will shrink by $2.3 trillion. So far 80 countries have already asked for the emergency fund from the IMF. Kristalina Ivanova Georgieva said there is a possibility that $2.5 trillion will be topped for the financial needs of emerging markets.

Subash Chandra Garg, the former Finance Secretary, and former Economic Affairs Secretary has stated that the Indian growth will likely be negative next year unless the government takes measures to prevent it. He also commented that the two-thirds of the economy has been severely hit and the GDP after the lockdown will be reduced by 5-6%. Economist Arun Kumar has also gone ahead to say that the current situation is worse than those faced during a war.

The GDP does not represent all the sections of the society accurately as those with high incomes though few pull the average towards rearer ends. Hence in a situation with a possible negative GDP in the coming quarter will mean that those in the lower-income sections are devastated.

Closing Thoughts

— Extended Lockdown?

Despite having the worlds largest lockdown, researchers from the Cambridge university released a paper that suggests adding length to the lockdown to properly contain the virus. The paper suggested a three phase lockdown (21 days – 5 days rest – 28 days – 5 days rest – 18 days) or a continuous 49-day lockdown for the Indian region. Based on the observations of the current lockdown, the economy is operating at -50% of the GDP as per Arun Kumar. In addition to the effect on daily wage and unorganized sector workers, India cannot afford another extended lockdown without much more serious consequences.

There is a need to ramp up the testing done in India to catch up with the curve and hopefully flatten it. This is a necessity because the current scenario has exposed the cracks in the Indian infrastructure and its ability to cope with a crisis. India has one doctor per 10,000 people in comparison to 41 in Italy and 71 in South Korea.

— Inadequate relief measures

The current policies aimed at the poor in the form of increased income offer is just a mirage of actual help. A lot more has to be done to ease the suffering due to the lockdown t0 the poor. Any success in the relief package or hopefully a stronger revised relief package will require involvement and coordination with the state governments. The current exodus of workers could have been prevented if state governments were kept in the loop. The lockdown too would have been better implemented. Hoarding and police brutality are attributed to the lack of communication and direction from the government.

Subash Garg mentioned how over the last 70 years of our history there are no measures taken specifically to save and push businesses. The government has to roll out new policies to ensure this, especially in the current situation. Else these businesses will find it hard to start again. The severe times of 1990-91 bought forward reforms. Similarly to stimulate the economy, revised relief packages and new reforms are in need. It is already certain that the Corona Recession of 2020 (hopefully not depression) will replace all comparisons in the future that were earlier made with the 2009 crisis.

Why did Indian Stock Market crash in 2020? Causes & Effects

Why did Indian Stock Market Crash in 2020? Causes & Effects!

Indian Stock Market Crash in 2020: After making a peak of 42,273.87 points in Feb 2020, Sensex crashed over -38% by 23 March 2020 to 25,638.90 points. We are currently witnessing one of the fastest crashes in stock market history, even worse than the 2008 market crash as quoted by many leading market analysts. In this article, we are going to discuss the reason behind this stock market crash in 2020.

Here you’ll find everything that you want to learn regarding the Indian stock market crash in 2020. We’ll look into leading causes, facts, effects and what do economists have to say about the crisis. However, before we start the article, let’s first understand what exactly is a stock market crash so that everyone is on the same page. Let’s get started.

What is a stock market crash?

A stock market crash is when a market index faces a rapid and unanticipated severe drop in a day or a few days of trading. A double-digit percentage drop over a few days in the market index generally constitutes a stock market crash. A stock market crash may be caused due to economic bubbles, wars, large corporation hacks, changes in federal laws & regulations and natural disasters. They are generally followed by panic selling and can lead to bear markets, recessions and even depressions.

There have been a  few measures to stop a crash. One being large entities purchasing massive quantities of stocks in order to curb panic selling. Trading halts have also been introduced but both these measures have not been proved to be actually effective in pausing a crash.

(The stock market crash of 1924 was one of the most unfortunate crashes where the Dow Jones Index lost 23% in two days and eventually led to ‘The Great Depression’.)

Do Stock Market crashes lead to Recession?

A stock market crash reduces the investors’ confidence in the economy and as the falling shares slowly wipe out investor wealth. Investors resort to selling off their holding at minimal costs. Due to lack of confidence investors also refuse to partake in the purchase of shares.

With the diminished wealth of investors and the valuations of companies dropping, it makes harder for companies to raise capital and secure debt. Companies in bad financial shape lead to layoffs resulting in a fall in demand in the economy. As the decline continues the economy contracts resulting in a recession. A stock market crash does not necessarily result in recession but a recession always results in a stock market crash.

Also read: How Does The Stock Market Affect The Economy?

Why did Indian Stock Market crash in 2020?

The period between 17th January 2020 to 27th March 2020 saw the SENSEX lose 12,129.75 points. Multiple events were involved which led to a negative impact on the market.

Why did Indian Stock Market crash in 2020

The presentation of the Union Budget on 1st February 2020 coupled with the coronavirus panic led to the SENSEX falling by 2%. Later, WHO classified Coronavirus as a potential pandemic on February 28th, 2020 which led to both the Nifty and the Sensex ending with the worst weekly fall since 2009.

This was further followed by the shares of Yes Bank falling on March 6th due to bad loans and one of the worst NPA in the country. One of the founders of Yes Bank was also arrested on corruption charges. The fall after Yes Bank coupled with the effects of Coronavirus in Europe and the US resulted in the markets touching 35,636 points. (Read More: The Unravelling of Yes Bank – Fiasco Explained)

On 12th March the Sensex fell by 8.18% as a result of WHO declaring corona a pandemic. As the pandemic further spread and the number of cases in India worsened the stock Market plunged 13.5% on March 23rd. Besides, a countrywide lockdown of 21 days was announced by Prime Minister Narendra Modi starting from midnight March 24th. The lockdown was a necessity to curb the spread but it was the last thing the Indian economy required in its efforts to make a recovery.

Also read: Indian Markets: A Week Against Coronavirus & Crude Oil Fall

Is India headed towards a recession?

A recession is typically described as 2 consecutive quarters of negative growth. However, a few more factors are also in play.

The NBER ( National Bureau of Economic Research)  defines a recession as “ a significant decline in economic activity spread across the country lasting more than a few months visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

With several predictions by notable economists indicating India having a negative GDP, the lockdown has further intensified all the other factors possibly directing the economy towards a recession due to lack of income to major portions of the sector, with tourism industry already facing unemployment, the other industries will definitely face the heat. The lockdown also guarantees a drop in production and a drop in wholesale retail and sales.

What has the Government done so far?

All efforts by the government began after the lockdown was announced. The Finance Minister Nirmala Sitharaman announced a financial relief package of Rs 170,000 crores. The package included hugely appreciated Rs 50 Lac insurance cover to every individual in the health sector. The finance minister also announced 5kg of wheat and 1kg of pulses in addition to the existing scheme to over 80 crore individuals.

This too was appreciated as the 21-day lockdown would rid the daily wage workers of any source of income. The withdrawal limit of the EPFO was hiked. This was done to transfer cash into the hands of individuals. This would also provide support to unemployed workers.

In addition, the Finance Minister also announced that the center will pay the Provident Fund requirements on behalf of both the employer and also the employee for 90% of the employees. This will further reduce the burden on small businesses as it is targeted towards firms with less than 100 employees and those that have salaries less than Rs 15,000.

(RBI Governor Shaktikanta Das in talks with the Finance Minister Nirmala Sitharaman)

The RBI announced a moratorium on EMI for the next 3 months and also cut the Repo rate by 0.75% to 4.4%. The Moratorium on EMI’s will reduce the burden on individuals.

The repo rate, on the other hand, will make it cheaper for individuals to avail loans, however, deposits will receive reduced interest. This is aimed at increasing cash in the hand of an individual resulting in an increased demand which in turn may lead to stimulating the economy.

What do economists have to say about the crisis?

— Raghuram Rajan

(Raghuram Rajan- Former RBI Governor)

Former governor of the RBI, Raghuram Rajan, known for predicting the 2008 financial crisis and recession in 2005, said in an interview that the most important requirement right now is to prioritize targets such as fulfilling supplies and physical resource requirements of the healthcare sector followed by reaching out to the poor and only then should the question of reduction of taxes and temporary income support should come into the picture.

On questioned about the impact coronavirus may have on the global economy he answered that due to the unprecedented situation we should first look into the Chinese economy and observe the relaxation placed in China and the response COVID-19 has to it and accordingly take an action depending on if the virus spread begins again after the relaxation.

This would mean that the lockdown would be required to be implemented for longer periods. He also said in the interview that it may be a little too early to predict if the COVID-19 pandemic will lead us towards depression. In addition, he further added that with a recession almost certainly on the cards we still can focus on avoiding a depression based on measures taken

— P. Chidambaram

( P. Chidambaram – Former Finance Minister)

The former finance minister advocated the lockdown but mentioned that a lockdown alone was not sufficient. He mentioned that a relief package of 5-6 Lac Rupees is the absolute minimum which is required. He also provided a 10 point action plan which included the direction of cash and food towards the urban poor, assurance that the employer will be reimbursed for any wages paid during the lockdown and also proposed cuts on the GST.

On being questioned about future economic recovery he answered saying that there is no economic recovery on the horizon. Although the growth for the last quarter stood at 4.7% due to corona as per global economic loss prediction of 2% percent the same may be applied to the Indian markets.

He also added that the situation the country is put in now is worse than the migration crisis post-independence, famines to date, the tsunami of 2004 and even bigger than the 2008 financial crash and in fact even bigger than all of them put together.

— Jayati Ghosh

(Jayati Ghosh – Indian Economist)

Jayati Ghost one of India’s foremost economists and also a Professor at JNU, Jayati Ghosh, took a much more critical stance to highlight the magnitude of the problem the lockdown will create.

According to Jayati Ghosh in a country like India, a lockdown of more than a week will have severe disruptions. The damage done by the lockdown is already greater than the damage caused by demonetization due to which the economy has still not recovered. A massive shock such as this will have a negative multiplier effect and will continue to permeate.

She added that lockdown which has already disrupted the demand within the economy, with the supply chain broken down will force farmers to get rid of their stock as they will not be able to sell their produce and any bulk buying or hoarding engaged in the consumer end will only lead to shortages in the economy.

On being asked on what effect this will have on the GDP she made it clear that she has reservations already of the GDP figures being fudged and are actually lower than that reported by the government due to which we may see negative GDP in the coming quarters. 

Closing Thoughts

Prime Minister Narendra Modi announced that if the nation does not impose the lockdown, the country and our families will be set back by 21 years.

After taking a closer look which makes it clear that a lot more has to be done before it further devastates the country if poorly implemented and makes one wonder that if so, by how many years is the economy going to fall behind due to the lockdown. The government has to have a plan in place instead of abrupt decisions followed by a plan that may fall in line with such decisions. This is required to keep the economy from falling into a depression at all costs.

While looking into the Indian stock market crash in 2020, we should also not forget that it took the Dow Jones Index almost 25 years to recover from the crash that had led to The Great Depression. The financial package announced which currently makes up 0.8% of the GDP does not even reach the bare minimum set by former Finance Minister P. Chidambaram at 5 lac to 6 lac crore, let alone be compared to Western countries where they are set at 5- 15% of the GDP. The government still has to roll out policies swiftly to make the necessary yet draconian lockdown a success. 

Coronavirus Impact on Global Indexes (2020) – US, Europe & More

Coronavirus impact on Global Indexes (2020) – US, Europe, Russia, India & More: India, currently in stage II of the novel coronavirus with over 500 cases reported throughout the country. This has resulted in an entire country imposing a lockdown. The center is still caught up in its efforts to make the gravity of the situation heard with the PM himself addressing the nation. The PM also had requested the nation to take part in a self-imposed curfew along with a noteworthy attempt at a show of admiration for all the essential services.

Indians today are going through a phase never experienced before at any of the earlier outbreaks. However, this turbulent phase has not only been limited to our personal lives but also as investors we are breaking into bearish conditions. These conditions were not foreseen at the initial stages of the outbreak.

With the Sensex falling over 36.54% since January 31st we take a look at how some other notable indexes around the world have fared against COVID-19 and also look into the respective government responses in such economies. The table below shows how the following global Indexes have performed since January 31:

CountryIndex% Change: Jan 31 - March 23, 2020
RussiaRTS41.74%
BrazilBOVESPA41.04%
IndiaSENSEX36.20%
ItalyFTSE MIB32.30%
USADOW JONES32.14%
GermanyDAX31.22%
FranceCAC30.27%
UKFTSE28.76%
ChinaSSE COMPOSITE3.15%

Quick Start: What is an Index?

Indices are used as a benchmark to measure performance. An index consists of major companies listed in the stock exchange which are measured together to arrive at a value representative of the entire market over a period of time. The stocks involved are weighted based on the capitalization of the respective company.

Country-based indexes track how the national stock exchange is performing. The NIFTY in India consists of the top 50 stocks listed in the NSE. The Sensex in India is representative of the top 30 stocks listed in the BSE. Further, an index is also a market sentiment indicator.

Coronavirus impact on Global Indexes

— Coronavirus effect on Russian Markets  (RTS – 41.74%)

Coronavirus effect on Russian Markets

The Russian Trading System (RTS) Index faced an overall drop of 41.74% since January 31st. However, the problems faced by the RTS were not limited to the coronavirus panic but also due to the oil price crash. The crash was caused due to the Russian fallout with OPEC. This had a critical effect on the Russian economy due to its main export being oil.

Coronavirus affected the market once it further spread through the European region. This further led to the Foreign Investors engaging in panic selling. Russian Sberbank which declared a $3.2 billion in profit still suffered a fall of 5% in its stock price.

CEBR a leading economic consultancy from the UK forecasted the Russian economy to sink by 4% in 2020. The forecast also included little expectation of a short term rebound. Although the central bank remains uncertain about rate cuts, Russia will create a $4 billion anti-crisis fund to protect its economy from the coronavirus shock.

— Coronavirus against the Brazilian market  (BOVESPA – 41.04%)

Coronavirus against the Brazilian market

It may seem surprising to find a South American country to have a market hit as hard as the BOVESPA Index. The BOVESPA Index suffers a 41.04% market fall even though it is not considered a hotspot for coronavirus. This was because of the dependence of Brazilian exports on the Chinese markets.

In 2018, almost 25% of Brazilian exports and almost half of the commodity exports were directed towards China. These suffered a hit during the demand slump China faced due to the outbreak. This added to the roadblocks created by their business-minded President Jair Bolsonaro over the development of the Amazon Rainforest. This has led to investors avoiding the Brazilian market particularly after his unfavorable stance towards the environment after the Amazon fires.

amazon fire brazil

The outbreak indirectly led to foreign investors further exiting the market in the crisis. The Brazilian market faces a situation where it fails to attract dip buyers as well. Furthermore, even the 30 billion package unveiled by the government has been criticized over its failure too adequately apprehend the magnitude of the problem.

— Coronavirus against European Markets

Coronavirus against European Markets DAX CAC FTSE

The problems in Europe can be attributed to most of the countries considering Corona an East Asian issue. Europe is currently a hotspot for the COVID-19 with Italy, Spain, Germany, and France being hit the worst. All of their markets fell at around 30% with further lockdowns imposed. The stock markets in Europe were further impacted after Trump announced a ban of all flights headed from Europe to the US.

( The famous painting ‘Mona Lisa’ by Italian artist Leonardo Da Vinci depicted with a medical mask over the coronavirus outbreak)

France also threatened to close its borders to the UK over its inadequate action taken towards containment of the virus. Over 6,000 people are suffering from the virus in the UK. The turmoil in Europe was further intensified with the German Chancellor Angela Merkel going into quarantine after one of her doctors was tested positive for coronavirus.

The European Central Bank is expected to cut interest rates into the negative territory. The Central Bank is to also extend long term loans to banks in an attempt to provide relief to Italy and the other European countries where coronavirus has a devastating effect.

The following packages were announced by the European governments to combat coronavirus:

CountryRescue Package(Billion)Directed towards
Italy$28Employment, Healthcare, Bonuses for Emergency Services and loans to Small and Medium businesses
Germany$610Companies hit by Corona in addition to relaxed tax norms
France$335Loans to Businesses, in addition, to pay to workers who lost jobs.
Spain$200To fight Corona Epidemic
Spain$100Small and Medium Businesses
UK$424Health services and Loan guarantee to Businesses

Britain’s Financial Conduct Authority has also directed companies to not release preliminary financial statements for at least another two weeks due to coronavirus.

— Coronavirus against the US Markets ( Dow Jones – 32.14%)

The US also suffered from the ignorance and underestimation of the virus. The virus has currently affected over 45,000 people in the US. Stock markets in the US were initially affected due to the crude oil price crash. This was due to the high marginal cost of production prevalent in the US which stands at 40$ per barrel whereas the barrel prices were slashed to around 30$ per barrel.

This was followed by the coronavirus panic and Trump travel ban against 26 European countries further impacting the Airline Industry. The number of coronavirus cases has exploded in the US since then.

(The ‘V-J Day in Times Square – New York’ iconic photograph depicted with medical masks over Coronavirus)

Measures taken by the US government include unemployment benefits, sick leave benefits, free coronavirus treatment including food and medical aid to people affected. Also, $50 billion has been announced as an immediate relief for the airline industry and $50 billion in further secured loans to other parts of the economy.

Congress is also further negotiating a 1 Trillion dollar rescue plan along with sharp rate cuts by the Federal Reserve. These measures have also led to corporations postponing layoffs in return for a big bailout.

— Coronavirus against the Indian Markets (Sensex – 36.20%)

Coronavirus against the Indian Markets (Sensex - 36.20%)

With the Sensex falling 26.54% since January 31st and the Nifty 50 falling 31.85% in the last 30 days. Trouble began with the crude oil price fall which would have been welcome in any other situation as India relies heavily on import of crude oil. Any benefits due to the price fall were put to a halt due to the effects of coronavirus on the airline and tourism industry and eventual lockdowns which resulted in a drop in demand. With the officially reported cases within the country touching 500, the question remains if the healthcare infrastructure can bear the burden of an increase in cases.

The RBI announced that it will conduct an open market purchase of bonds worth up to Rs 15,000 crore besides announcing a fresh round of fund infusion from variable-rate repos. With the cases in India increasing the government has called for lockdown in multiple states which will further affect the volatility of the market.

However, the RBI has also created a unique Business Contingency Plan(BCP) by setting up a team of 90 process critical members from the RBI of which only half will work at any given time whereas the remaining half will wait on stand-by, 60 key personnel from their external vendors and 69 additional support staff, all to work in a War Room during the outbreak. A facility has been hired where the 219 members will be hosted.

Precautions are taken to an extent where all personnel will also be donning hazmat suits. This also includes the support staff involved in maintenance, security, kitchen, front desk, and the administration. The BCP also involves maintaining isolation and social distancing of the 219 members.

In addition to the actions taken by the RBI, the state governments are also resorting to providing financial relief to those affected by the respective lockdowns imposed.

Also read: Nifty 50 Stocks – 7 Stocks crashed over 50% since Coronavirus Outbreak

— Coronavirus against the Chinese Markets ( SSE Composite Index – 3.15%)

Coronavirus against the Chinese Markets ( SSE Composite Index - 3.15%)

The Chinese Shanghai Composite Index (SSE) has fallen 0.04% since 3rd February. These figures would not form a fair comparison as the epidemic hit China first in December, whereas all the other regions faced the pandemic in the other European countries increasing in February and March itself.

However, even when the fall is measured since December the net impact on the Chinese market lies at 4.53%. Then how is it possible that of all the countries China has one of the least impacted stock markets even after being the worst-hit place by a coronavirus and also being the point of origination.

The Chinese government imposed stringent lockdowns and also suffered a 10% fall between 22 January to 3rd February. This was followed by the central bank announcing that it would inject $174 billion worth of liquidity into the market through reverse repo operations in addition to rate cuts.

The Chinese policymakers found ways to reach vulnerable households of Social Security Fees, Utility bills and provided them with other immediate requirements during the lockdown. Also, the most important economic effect against the virus would be the aggressive stand taken by the authorities by doing everything necessary particularly by ramping up its healthcare needs, stringent lockdowns which gave a brighter outlook in terms of economic prospects as life slowly resumes in China.

However, Goldmann has forecasted that the Chinese economy instead of growing by 2.5% will contract by 9% in 2020.

The Road Ahead

(The Bullish Markets enjoyed previously by investors have come to a full stop. Interestingly stocks of  gaming companies like Ubisoft are expected to be on the rise after lockdown and quarantine measures taken by the governments worldwide)

Lockdowns are now becoming a necessity. Rate cuts and infusion of cash into the economy seem to be the only way out to protect economies from the COVID-19 quicksand. However, we have currently seen countries that are facing coronavirus in the 3rd stage generally have a stronger infrastructure and better healthcare facilities but are still not able to cope.

Nations with a poorer infrastructure will face an impossible task if the spread of the virus spirals out of control. This calls for aggressive measures to the taken to prevent the spread of the virus in these countries until a suitable vaccine is officially declared by the WHO.

Pertaining to the current scenario banks like JP Morgan have forecasted a coronavirus driven recession that will rock the US and Europe by July. Deutsche Bank has also warned that based on current trends we could be facing a severe global recession over time.

Life During Coronavirus Times Changes & Effects

Life During Coronavirus Times: Changes & Effects

Life During Coronavirus Times: In the last few weeks, if you’ve been living in a metropolitan city in India, you might have noticed several changes. A lot of usual day-to-day activities that you used to easily perform in previous months, might not be accessible to you now. For example, going out for dining with friends, attending the gym, relaxing at parks, partying, etc.

The reason behind all these changes is the pandemic coronavirus, an infectious disease caused by a new virus, that was originally found in China, and which later spread throughout the world. As of 22nd March 2020, this virus has affected over 340,000 people worldwide and resulted in the death of over 14,000 people. Here’s a live counter of coronavirus pandemic with real-time counts and world news:

As Coronavirus disease spreads primarily through contact with an infected person (when they cough or sneeze) and its vaccine has not been found yet, the government has taken various steps to tackle the situation and to limit its spread. In this post, we are going to discuss such changes that have already been made in India and its effects in the short and long-term. Let’s get started.

Changes Made to Tackle Coronavirus

Here are a few of the big and necessary changes that the government and the Indian population have implemented to fight back with coronavirus. Although these changes are temporary, however, they may last even for months:

1. Social Distancing

Although not a new concept, nonetheless, a lot many people are not familiar with social distancing. It is a set of non-pharmaceutical infection control actions intended to stop or slow down the spread of a contagious disease.

As this virus is contagious and spread by touch or when people come in contact, it is suggested to maintain a minimum distance of 1 m (or 3 ft) with others and not to indulge in groups bigger than five. Social/Physical distancing is the most common change seen in this coronavirus days.

2. Work from Home

A lot many corporate employees are mandatorily offered work from home for a sustained longer period for the first time in their career. Almost all big and small companies in the metropolitan cities have now given work from home to their employees. Although this might have resulted in lower productivity. However, work from home means less physical interaction, less traveling and minimal spread of the virus among colleagues at the workplace.

3. Lock-down/Curfew

After the success of ‘Janata Curfew’ started by PM Narendra Modi on 22nd March 2020, over 75 districts in India have now imposed a complete lock-down. As a lock-down is the only noticeable successful strategy that been followed by other big countries infected by the coronavirus, Indian states have also started implementing a similar lock-down/curfew strategy.

4. Travel Ban/Restrictions

As of 22nd March 2020, all the international flights are banned. Moreover, on the same day, Indian Railways also announced to cancel all passenger trains, and reduce suburban trains. By passenger trains, the ministry of railways means all mail, express trains, suburban trains, passenger trains, Kolkata Metro Rail, Konkan Railways, etc.

Effects of Coronavirus Spread

If the spread of coronavirus is not contained, the number of cases and casualties in India is expected to increase in the upcoming weeks. The total number of affected cases has already crossed +400 in India. The above-mentioned changes may help to fight back the virus. Nonetheless, here is a few common effects that may be noticed among the people because of coronavirus changes:

1. Dealing with Fear, Social (& Mental) Anxiety

Fear and anxiety are quite common during a pandemic. As the number of cases with coronavirus casualties in India will increase, it may increase the fear and anxiety among the population.

2. Personal cleanliness & hygiene

To control the spread of this contagious virus, washing hands frequently and cleanliness are a few of the key steps. Indians have now started taking care of their hygiene and cleanliness.

3. New kind of patriotism

Because of different changes made in the country like International travel ban, lock-down, and country first approach, it is expected to see a rise of new kind of patriotism among people. During Janata Curfew (22nd March 2020), we’ve already seen how the people of India appreciated the work done by Doctors, and servicemen by banging thalis, ringing bells and clapping hands for five minutes at 5 pm.

Financial and economical Effects

Now, let us talk about the stock market, finance and economy. How coronavirus days may impact us financially and economically:

1. Continued Bear Market

During the coronavirus days, the share prices and market have already witnessed a sharp crash. Within less than one month, all the major market indexes have fallen over 30%. Nonetheless, it is expected that the market will continue to run in a bear market for a continued longer duration. This is because the aftermath of this pandemic virus will take a lot more time to make things normal, both in the personal and professional lives of people.

2. Pay-cut or lay-offs

Due to the spread of the virus, a lot of companies are not able to perform well and their revenues are continuously tanking. And in order to avoid bankruptcy or financial stress, these companies may have to cut salaries, delay new hirings or even lay-off some employees. Moreover, the lay-off scenario may be worse in some highly affected industries like travel, tourism, hotels, airlines, bars, malls, etc that are heavily affected by the lockdown.

3. Rise of online businesses

Although the market and economy are continuously falling during the coronavirus days, however, there may be a silver lining for a few sectors during this time. A few industries like online learning (Byju’s, Unacademy, etc), online payment (Phonepe, Paytm), Online Grocery (Bigbasket, Amazon), E-commerce, etc are performing quite well as people are opting for their product/services from their homes. These industries are expected to boom during the coronavirus days.

Also read: Coronavirus- How it Infected Stock Market & Indian Economy!

Closing Thoughts

In this post, we tried to discuss a few common changes and their effects in India during the coronavirus days. Nonetheless, these are just assumptions and it might be a little early to say what will exactly happen.

The next two weeks are quite crucial for India in its fight towards coronavirus and they may be the deciding factor. In these times, how the government of India and its people handles the situation will play a major role among the changes, effects, and aftermath that we may see in the future. Take Care and till next time…!

The Equilibrium of Duopolies in Indian Market cover

The Equilibrium of Duopolies in Indian Market

Duopolies in Indian Market: Visa vs MasterCard, Boeing vs Airbus, Coke vs Pepsi, Netflix vs Amazon prime, etc are some of the companies that have already been etched most notable duopolies throughout the world. Be it a boon or a bane, these mega-corporations cannot be named individually without mentioning the other. Such has been the tale of Duopolies, their fierce competition, and respectful cooperation eventually forming an interdependence where each has scaled summits.

(Rivalry noticed through Advertisements)

(Pepsi responded to the above-attempted sale of Coke’s secret ingredients by notifying Coka-Cola)

In this article, we further look at Duopolies that have shaped and extended their segments, particularly in the Indian markets.

Duopolies in Indian Market

— Zomato vs. Swiggy – Food tech

zomato vs swiggy - Duopolies in indian market

A decade ago Dominoes and their ’30 minutes or free’ scheme stood for food delivery in India. However, the real credit has to be given to Zomato and Swiggy for the development of the Food tech industry in India. They have now formed an integral part of our lives and also sets the perfect example of a duopoly in the Indian context in the food tech/delivery industry.

Zomato was founded in 2008 initially as a website that provided information on restaurants, access to their menus, the ability to view and provide reviews. However, they eventually ventured into the food delivery segment. On the other hand, Swiggy was set up as a food delivery platform from the beginning in 2014. Both competitors have used a strategic discounting model to attract and keep customers. Moreover, advertisements through social media have played a significant role in their growth and competition.

Strategies used by Zomato

Each of these corporations has strategically acquired other new entrants to enhance their growth to gain an upper hand. This was also done to use them as a doorway into new markets. Zomato has made 12 acquisitions which include companies throughout the globe. The acquisitions are involved in restaurant search service, table reservation, restaurant management platforms, logistic tech startups, food delivery startups with their most notable recent acquisition being UberEats. Zomato has also acquired companies involved in drone technology focusing on the possibility of a future with drone-based food delivery.

Strategies used by Swiggy

Swiggy also has made notable acquisitions like 48 east, Scootsy logistics and also invested in Fingerlix- a ready to eat food brand. They also enhanced its customer base by easing the payment systems for working customers by partnering with Sodexo. In addition, Swiggy has also partnered with Indifi technologies, a financing program for partner restaurants. 

The strategies used by Zomato and Swiggy show how the food tech duopoly in India has competed using the technique of an acquisition. As mentioned earlier, this was also used as a medium to enter new markets and build on the structure already set up by the company taken over.

But when the pages are flipped over it also shows the difficulty a startup could face when competing with companies having greater control over the market. This is because they have already built resources over the years and are ready to burn through cash even after going through losses. They will eventually have to give in to the offer placed by either of the duopolies as it would be an uphill battle to compete with strategic discounting employed by either of the companies.

Also read: Online Grocery Market: Overview & Future in India (2020)

— Ola vs. Uber – Ride Booking/Sharing

uber vs ola - zomato vs swiggy - Duopolies in indian market

The ride-hailing segment in India is dominated by Ola and Uber. Uber a globally recognized corporation known for its ride-hailing service in 785 metro cities worldwide. They entered the Indian market in 2013 and currently boasts 14 million rides a week in India. Ola, on the other hand, had a three-year head start and currently boasts a reach of over 250 cities with 28 million weekly bookings.

Strategies used by Ola vs Uber

Ola and Uber too have used the strategies of acquisition and investment. Uber acquired Kareem particularly known for its service in the middle east and Ola has invested in VOGO to further its reach in the two-wheeler ride-hailing segment. Both Uber and Ola have competed aggressively in all road transport segments ( inc. two-wheeler, three-wheeler).

They have also entered other segments namely the food tech industry with Uber initiating UberEats and Ola acquiring Foodpanda. Uber has also extended its service to other means of transport through UberAir which uses VTOL aircraft in the US and also UberBoat in Mumbai at the jetty from Gateway of India to Alibaug. In addition, they are particularly keen on developing self-driving cars to be introduced in the ride-hailing segment.

However, in the case of Ola and Uber, we also see another side of the duopoly segment. Ola had been earlier accused of attempting to eliminate competition by lowering prices. This makes it impossible for new entrants to survive and then hiking prices when convenient.

Besides, both Ola and Uber have been accused of overcharging in situations where the same ride is charged different amounts based on the day, time, profile, history, rating of both the rider and the driver. This was opposed as both attempt to show a front of transparency to attract customers to their reasonable pricing. The same surge in pricing would not be acceptable when applied by local players.

They have also been accused of baiting riders with discounts and bonuses and then hiking fares without passing the gain from the price hike to the drivers. One of the main reasons that Uber and Ola have been in controversy is the fact the drivers are not considered employees of these corporations. They are instead considered as ‘contractors’ as this allows them to skirt legal obligations mandated towards employees.

If we look into the strategies used by Uber at a global stage to remain market heads they would seem to be straight out of a conspiracy novel. Uber to compete with Lyft in new York had formed a street team to gather information on Lyft’s expansion plans and lure their drivers into Uber. In 2014, 177 employees of Uber were accused to have intentionally ordering and canceling 5560 rides.

Uber also has been criticized for the development and implementation of the software tool ‘Greyball’ which was used to gather user data from their phones and avoid giving rides to law enforcement officers and those involved in sting operations. Uber also used the Ripley a panic button 24 times at the times of raids. Ripley would shut off and change the passwords of the staff computers when initiated. The controversy with Uber gets worse as they have been accused of implementing ‘God View’ a function used to track journalists and politicians.

Also read: The On-going Oil War (2020) – Causes & Effects

— Flipkart vs. Amazon – Indian eCommerce

When it comes to E-commerce the duopoly Flipkart and Amazon are said to have a combined market share of over 90% in the Indian market. Flipkart was founded in India in the year 2007 whereas Amazon had been launched in India in the year 2012.

Strategies used by Flipkart and Amazon

In comparison, the homegrown company ‘Flipkart’ has been a market leader even when facing Amazon. Flipkart being an Indian company has used this to its advantage by spreading its reach even to rural areas whereas Amazon had initially limited itself only to metro cities. Almost 45% of Flipkart’s sales currently come from smaller towns and cities giving them an edge over Amazon in India. Amazon, on the other hand, has targeted metro cities which formed 65% of its sales.

Flipkart too as noticed in the earlier examples has used similar strategies of acquisition ( Myntra, Jabong, PhonePe, and eBay). Amazon, on the other hand, has relied less on acquisition and more on forming partnership with local logistic companies to bolster business.

The entry of Walmart into India through the purchase of Flipkart gives an insight of means used by MNCs to enter new markets. This was also used by Zomato and Uber in the previous examples.

Disrupting a Duopoly

The duopoly held by MasterCard and Visa in the international payment segment was disrupted by the introduction of RuPay in India. After noticing multiple examples of new entrants not being able to compete with already set Duopolies eventually leading them to being acquired, the question arises on how RuPay was able to achieve this in India. 

RuPay belonging to the domestic payment system was set up in India in the year 2005 by the Board of payment and Settlement systems by the Reserve Bank of India. The RuPay card was introduced in 2012. As the processing of the transaction in RuPay is within India they are lower than that of MasterCard and Visa. This is because the processing in MasterCard and Visa take place abroad resulting in a higher processing fee along with their higher fee structure.

The rise of RuPay can also be attributed to Prime Minister Narendra Modi who had publicly endorsed it. One of Modi’s schemes namely the PM Jan Dhan Yojana helped RuPay contend with global players. Here, financial services, bank accounts, and a RuPay card were made available to most of the rural population free of cost.

Government support, Deep Pockets and a focus on the local problems that MNCs overlook seem to have worked for RuPay to become the top player in India. However, this led to the government facing a lot of backlash on the global stage with Visa and MasterCard crying foul and alleging that Modi used patriotism which they viewed as a way of protectionism against them.

Closing Thoughts

After considering three of the most notable duopolies in India we can note that for the successful functioning of a company a certain degree of cooperation is required to maximize the profits. With both companies acting as a check on each other the greatest benefit reaches the consumer.

Example – strategic discounting used by Zomato and Swiggy. These benefits are not available in a monopoly. It is also important for the government to maintain stringent checks to avoid the formation of cartels. The best comparison can be seen in Uber. The management has been termed as a ‘ Group of Thugs’ in the US ( where it has a market share of over 65%) due to its unethical practices. In India however due to a stronghold by its competitor Ola it has had to forego its ‘win at all costs’ attitude which was also later forgone in its operation in the US.

Another disadvantage a duopoly may have is on the stakeholders in the operating region, particularly its employees. All the companies taken as an example burn through cash without achieving profitability for a considerable period of time. This is done to survive the competition and eliminate new entrants. Failure of any of the companies will result in mass layoffs. Even if they enter a position of being acquired, employees that may increase duplication of jobs will not be hired. 

Acquiring a major market share does not then limit the competition in the Duopoly to each other. In the future, we will see many new entrants ready with deep pockets to take on these duopolies.

Amazon seems to be keen to make an entry into the food-tech segment. Also the Mukesh Ambani backed Jiomart has just made an entry into the eCommerce platform offering attractive incentives to users like savings of Rs. 3,000 on pre-registration.

The telecom sector, on the other hand, seems to be headed towards a duopoly with the supreme court taking a strong stand against Vodafone-Idea which owes the government $3.9 billion in dues interest and penalties. In the coming years, India will see Duopolies entering other segments and at the same time disrupt those that are currently in play.

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How Does The Stock Market Affect The Economy?

The stock market and the economy are in a lot of talk in recent days. Seeing the market indexes declined by over 30% within a month, an obvious question among people is to understand how does the stock market affects the economy.

In this article, we are going to answer the same and discuss the effect of rising or falling stock market on the economy. In addition, we’ll also answer whether the stock market and the economy are the same or not. Let’s get started.

Why do we have a stock market?

A stock is a type of security that represents an individual’s ownership in a company and a stock market is a place where an investor can buy and sell ownership of such assets. Trading stock on a public exchange is essential for economic growth as it allows companies to raise capital through public funding, pay off debts or expand the business.

The stock market exists for two main reasons, the first is to provide a company with the opportunity to raise capital that can be used to expand and grow the business.

If a company issues one million shares that can sell at $4 a share, this allows them to raise $4 million for the business. Companies find it favorable to raise capital this way so they can avoid incurring debt and paying steep interest charges.

The stock market also provides investors with the opportunity to earn a share in the company’s profit.

One way to do this is to buy stocks and earn regular dividends on its value- that is the investor earns a certain amount of money for each stock they own.

Another way is to sell the stock to buyers for a profit when the price of the stock increases. If an investor buys a share for $20 and the price eventually increases to $25, the investor can sell the stock and realize a profit of 25%.

Also read: Why do Stock Markets Exist? And Why is it So Important?

How the Stock Market affects the Economy?

The increase and decrease in stock prices can influence numerous factors in the economy such as consumer and business confidence which can, in turn, have a positive or negative impact on the economy as a whole. Alternatively, different economic conditions can affect the stock market as well.

Here are a few ways the stock market can affect the economy of a country:

— Movements in the Stock Market

The movements in the individual prices of stocks give the stock market a volatile character. As stock prices move up or down, their volatility can have a positive or negative impact on consumers and businesses.

In the event of a bull market or a rise in the prices of stocks, the overall confidence in the economy increases. People’s spending also increases as they become more optimistic about the market. More investors also enter the market and this feeds into greater economic development in the nation.

When the prices of stock fall for a continuously longer period, also known as a bear market, it has a negative effect on the economy. People are pessimistic about the economic conditions and news reports on falling stock prices can often create a sense of panic. Fewer investors enter the market and people tend to invest in lower-risk assets which further depresses the state of the economy.

Also read: What is Bull and Bear market? Stock Market Basics

bull and bear market

(Image credits: 5paisa.com)

— Consumption and the Wealth effect

When stock prices rise and there is a bull market, people are more confident in the market conditions, and their investment increases. They tend to spend more on expensive items such as houses and cars. This is also known as the wealth effect which is how a change in a person’s income affects their spending habits and eventually leads to growth in the economy.

In the case of a bear market or a fall in stock prices, there is a negative wealth effect. It creates an environment of uncertainty among consumers and a fall in the value of their investment portfolios decreases spending on goods and services. This affects economic growth as consumer spending is a major component of Gross Domestic Product.

A common situation of the wealth effect was during the US housing market crash of 2008, which had a large negative impact on consumers wealth.

what's the economy

(Image credits: Investopedia)

— Impact on Business Investment

Apart from consumer spending, business investment is also a key indicator of economic growth.

When stock prices are high, businesses are likely to make more capital investments due to high market values. Many companies issue an IPO during this time as market optimism is high and it is a good time to raise capital through the sale of shares. There is also more mergers and acquisitions during a bull market and firms can use the value of their stock to buy out other companies. This increased investment feeds into greater economic growth.

When the stock market is bearish, it has the opposite effect on investment. Confidence in the economy decreases and businesses are no longer eager to invest in the economy. The decrease in share price makes it harder for companies to raise funding in the stock market.

Other factors

The stock market also affects the bond market and pension funds. A large part of pension funds are invested in the stock market and a decrease in the price of shares will lower the value of the fund and affect future pension payments. This can lower economic growth as people who depend on pension income will tend to save more and this lowers spending and eventually the GDP.

While a fall in share prices has a negative impact on economic growth and GDP of a nation, it has a positive effect on the bond market. When there is a depression in the stock market, people look for other assets to invest their money in such as bonds or gold. They often provide a better return on investment than shares in the stock market.

Remember, it is always important to diversify your investment portfolio and spread your risk. Don’t throw all your eggs into one basket.

Final Thoughts: Stock market and Economy are not the same

Contrary to popular belief, the stock market and the economy are two different things. The GDP of an economy and the stock market gains are incompatible and, in fact, there is little comparison between the two. The major reason for this discrepancy is the difference in the size of the two markets. The economy depends on millions of factors that can have both a positive and negative impact, while the stock market is only affected by one factor, the supply and demand of stocks.

Also read:

For investors in the stock market, it is better to err on the side of caution and focus on the fundamentals of each stock rather than on the economy as a whole. As the saying goes ‘an economist is a trained professional paid to guess wrong about the economy’.

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Online Grocery Market: Overview & Future in India (2020)

An overview of online grocery market in India and it’s future: We all evolved from living in a world with no Internet to living in a world that cannot be imagined without Internet. Yes, we exist in the era of digitisation. From our daily needs to our daily activities we are surrounded by online apps, which have now become an integral part of our lives.

This article is to throw a light on how digitisation is taking over the ‘Indian Online Grocery Market’.

Food & Grocery Market in India stepping into the Digital Age

Let us recall the time when the only means to buy groceries was from brick & mortar stores or roadside peddlers and hawkers. From the time of stepping outside of home to the time when one can buy from home just at the tip of the hand, the Indian Grocery Market has enlarged.

In the year 2018, online F&G i.e. Food and Grocery stood at approximately $1 Billion and grew at almost 110% CAGR in its initial years of penetration from 2014 to 2018.  The online F&G market in India as of CY19 accounts for almost 0.2% of the overall market share. It is expected to reach 1.2% and touch a $10.5 Billion by the year 2023.

However, the offline F&G dominates the market and holds the maximum share but the dynamics of this industry are changing drastically. The online F&G is growing by almost 25-30% rate and the anticipated CAGR for it is 66% from 2018-23. (Source- LIVEMINTFinancial Express)

Market Players in Online F&G Market in India

Big basket groffers eat fitOnline Grocery Market Overview & Future in India (2020)

The rising start-up culture across the globe was the foundation that supported and motivated the application based modern age ideas like Byju’s, Cure.fit, Flipkart etc. Among these, the start-ups in the F&G industry were ‘Big Basket’, ‘Grofers’, ‘Ondoor’, ‘Godrej Nature’s Basket’ etc.

Moreover, in all of these, the most popular ones are ‘Big Basket’ and ‘Grofers’ with 1,00,000 and 40,000 orders in a day.

Apart from the newly established companies in this online space, there are few other giant offline F&G retail players that are now entering the online-based selling like ‘D-Mart’; ‘Reliance’ etc.

Additionally the large e-commerce players like Amazon and Flipkart’s FarmerMart have also initiated their operations in this segment. Online food delivery platform ‘Swiggy’ owned ‘Supr-Daily’; Dunzo; Milkbasket etc. are some other popular players.

Key Factors Influencing the Growth of Online F&G Industry in India

— Changes in Consumers Purchasing Patterns

The changing behavioural patterns in consumers purchasing habits is one of the most influential factors that has encouraged the ‘Online Grocery Market’.

With the rising e-commerce, consumers are more inclined towards purchasing online at the tip of the palm. The online transaction value of a retail shopper buying at-least once in a month is between Rs.900-1200.

It is a commonly notable habit nowadays where an individual with a free time is mostly scrolling through his/her social media accounts or other app-based services offered online.

— Convenience

Taking out time from a busy work schedule in office along with tiring days calls for much more suitable and convenient ways of living. Online purchasing is one such means, which eases one’s effort and offers a hassle-free purchasing from anywhere and at any time.

— Offline Players entering App-Based Online Space

On one hand where online purchasing is seen as a new way of living some others are facing a high competition and business model threat from the same.

Giant offline store-based retailers like D-Mart and Reliance, are now extending their operations from brick & mortar supermarkets to online-based selling websites. This implies that the how much big competition and opportunity is this online retail industry.

Business Model

In order to succeed must have a strategically proven and tested business model that forms a strong base for the business idea. Selling groceries online is an idea which is supported by two types of business models-

Online Grocery Market of India and It’s Future image

Internet Penetration

The average rate of using Internet per user is increasing at an exponential rate. With JIO’s price disruption the price for using Internet went down drastically and so the usage of Internet went up within last few years. Telecom operators are introducing more cheap plans for its users, which have increased the user dependency on Internet and related activities.

Indirectly this led to benefitting a large number of e-commerce players. Due to low-cost Internet, its accessibility among lower income level groups also increased thereby creating a larger customer base for online-based businesses.

Heavy Discounts and Offers

In order to attract a large number of customers these online F&G players offer huge discounts and cash back schemes. Selling at high discounts calls for the ability to absorb losses as well. Being backed up by large private equity investors like Softbank backed Big-Basket, these players are well funded and stable financially. Thus having an added advantage.

Low Cost of Establishment

The biggest expenditure for an offline store is the cost of establishing the store, which demands a suitable location, rental cost, construction cost (for self-owned outlets), staff salary, maintenance and other expenses. While on the contrary, an online store saves on all these costs.

 — No-Geographical Barriers

A brick & mortar outlet calls for physical location and has a limitation of serving that area only, an online store has no barriers of servicing a specific area. Although it calls for a strong supply chain to reach interiors but this has been overcome by the online operators.

Other Benefits

No time bound purchasing as apps are working 24×7. A wide variety of products are available. Certain players like Big-Basket offer specific delivery time in order to confirm the availability of the customer at the time of delivery and enhance consumer experience. Websites have a customer feedback on the product, which gives a much realistic view before purchase.

Drawbacks of Online based F&G Industry

Like every coin has two sides, similarly, this attractive online F&G market has its own limitations.

On one hand, where it is highly convenient and user-friendly it has its disadvantages like there is a lack of touch of the merchandise before purchase, frauds associated while purchasing online, delay in delivery, damaged or expired goods delivered, vegetables and fruits ordered online may not be fresh.

The rising awareness of health and eating healthy food raises concerns about buying groceries online.

Also read: A brief study of Petrol & Diesel price history in India

Conclusion

Consumer behavior is a very crucial aspect of any industry. Where we are witnessing newer business models with every passing year based on the changing preferences of consumers, online business models are on the rise. This is due to the changing habits in our daily lifestyle. The future of online grocery market in India only looks bright despite its drawbacks that are being resolved by the existing players, and is an opportunity to make big money.

The existing online F&G market is at its nascent stage and is growing with more and more opportunities.

Indian Markets - A Week Against Coronavirus & Crude Oil Fall

Indian Markets: A Week Against Coronavirus & Crude Oil Fall

Indian Markets Weekly Wrapup: As investors searched desperately for sightings of a leeway from the slumping market, last Thursday provided a worse off trajectory with WHO declaring coronavirus a pandemic. This led to the chokehold on various industries being tightened as it seemed to have contributed to the perfect two-punch combo to knock the Indian markets into a bearish slump.

Investors watched on as 11 lakh crore worth of wealth vanished with Sensex crashing by 2929.26 points. It was accompanied by the Bank Nifty falling 2951.45 points along with Nifty 50 which continued slipping further with a 950.40 points loss as Foreign Portfolio Investors sold off their holdings in the Indian markets. All closing at a two year low on Thursday.

The Wreckage through the week

The Indian market has already been suffering from the jabs from the economic slowdown, with added political tremors felt throughout the country due to riots, followed by the Yes Bank fiasco. Here we look at some other major events throughout the week.

— The Oil price hook

Last week, the crude oil prices were slashed to $30 a barrel. The cause was rooted in the Russian refusal to corroborate with Saudi Arabia in their plans to increase the crude oil output due to supply chain disruptions caused by the coronavirus scare. The scare had resulted in a worldwide demand slump.

This news only added to the Monday Blues in the US where the marginal cost of production touches $40 per barrel. Also globally, as this was the biggest drop in crude oil prices since the Gulf War.

However, this came as a relief to the Indian markets. Being the third-largest oil importer even a dollar drop per barrel would eventually result in an annual reduction in the import bill by Rs 10,700 crores. The benefits are still doubted due to the impact of the falling rupee against the dollar which currently stands at over Rs 74.

Also read: The On-going Oil War (2020) – Causes & Effects

— The COVID-19 Overhand Punch

The novel coronavirus outbreak had a devastating impact on any industry based in China or majorly dependant on China. By March 2020, the novel virus spread out to 119 countries. This was followed by the existing panic being materialized which already had investors all around the world bracing themselves for further impact on the market.

On Wednesday 11th, March 2020 with cases touching over 118,000, World Health Organisation (WHO) declared COVID-19 a pandemic. This was followed by a bloodbath the following day which wiped out most of the bullish movement achieved by the Sensex and the Nifty in the last two years confirming investments in India to be locked in a bearish state. This also led to a global turmoil with Dow Jones(US) posting a 10% fall, its largest loss in history and the FTSE ( London) losing 11%.

Also read: Coronavirus- How it Infected Stock Market & Indian Economy!

Indian Stock hits after Coronavirus being declared a Pandemic

The following notable stocks touched their lowest in 52 weeks on 12th, March 2020: 

  • Reliance Industries (RIL)
  • Tata Consultancy Services (TCS)
  • HDFC Bank
  • Hero Motocorp
  • GAIL
  • Gillette

Notable Industry-wise effects

— Corona vs Healthcare Industry  

Other significant effects are also to be faced by the Healthcare industry in India as over 90% of the medical supply is sourced from China. Supply disruptions are already faced in sourcing Active Pharmaceutical Ingredients(APV) from China which are used in the manufacturing of antiretrovirals used in the treatment of HIV. These are crucial as they are also currently being tested on patients infected with COVID-19. 

— Corona vs. Airline and Tourism Industry  

With WHO declaring coronavirus a pandemic, countries affected entered a lockdown. US banned travel from Europe and travel has been discouraged by the government.

This has led to the airline industry being affected by IndiGo airlines announcing an expected fall in the quarterly earnings after noticing a 15-20% fall in their bookings on a day to day basis. The shares of Indigo fell over 12% while Spicejet fell by nearly 20%. An even more severe impact expected in the tourism industry.

— Corona vs. Agriculture Industry

The effects of COVID-19 are now being experienced even in the agriculture industry due to its dependency on pesticides. The raw materials required are imported from China. The imports range from 40%- 90% depending on the chemicals required. If the current scenario persists this will eventually affect the food industry due to a reduction in the availability of pesticides which has already been plagued by rumors on a variety of foods that may aid the spread of the virus.

— Corona vs. Sports 

Any action taken specifically to prevent the spread of the COVID-19 is laudable, but we can still note and relate to the impact that has been on entertainment and sports. 

With multiple sporting leagues being canceled or played with closed doors the 13th edition of IPL has been suspended till April 15th. Estimated losses touching Rs.10,000 crores if canceled.   

Effect of Coronavirus on Sectoral Indices 

Last week, every Indian sectoral indices faced major losses (with only BSE Telecom facing a loss at 1.35%). All the remaining sectoral indices facing losses from 7.5% to 16.03%

Biggest Losers – Nifty Indexes
Nifty Media 16.03%
Nifty IT 13.56%
Nifty Metal 12.85%
Nifty Realty 12.57%
Nifty CPSE 12.57%

Outlook by End of the Week

With Friday, 13 March 2020, came the silver lining where market movements of Thursday were not repeated. Due to the effects of COVID-19 bearish markets were realized which were also noticed during the outbreak of SARS in 2003, Bird Flu in 2004, Ebola in 2014, and Zika in 2016. Here we can learn that the markets have always recovered into bullish positions and eventually performed better than ever.

Indians have already witnessed several decisions taken by the government that have led to being financial disasters, resulting in the eventual economic slowdown in the recent past. However, when the future of India is considered, there is little that can be done by a government in such market scenarios where it is trying to make up for the lead already gained by an outbreak.

Best option being to direct its focus on the root causes which involve the prevention of the virus spread and finding a cure before its too late. We have already learned from the effects on China and Italy where such outbreaks entering a lockdown phase result in graver consequences on the economy.

Cyclical and Non-cyclical stocks How do they differ cover

Cyclical and Non-cyclical stocks: How do they differ?

The best offense is a good defense. Just like in military combat or football, investors also need a good offense and defense strategy. In other words, you need to use more than one strategy in order to succeed. As a serious investor, there are many different ways you can do this. You can invest in a variety of stocks, cash, and other securities, you can also diversify your portfolio by investing in securities across various sectors and markets or you can invest in stocks that are at different growth and value levels.

Implementing the right strategy requires a good knowledge of the global economy and how the markets work- if you don’t have a good understanding of this, making decisions become incredibly difficult. As we all know, the economy goes through different business cycles and while we can’t predict the outcome of the cycles we can alter our decisions to keep up with the ever-changing landscape. This changing environment also provides a great way for investors to mix up their portfolio, namely with investing in cyclical and non-cyclical industries.

What are cyclical stocks?

As the name suggests, cyclical stocks are those that move in the direction of the market. That is when the economy is doing well, the stocks go up and when there is a downturn in the economy, the value of the stock goes down too. These stocks are more closely aligned with the broader economy and are more prone to economic activity.

Investors can use various indicators to tools to judge whether a stock is cyclical or not. One such popular indicator is Beta. In simple words, beta is a measure of a stock’s volatility in relation to the overall market. If a stock moves less than the market, the stock’s beta is less than 1.0. On the other hand, a beta of 1.5 means if the market falls 10 percent, the stock is likely to fall 15 percent. Cyclicals tend to have high beta values, which are usually higher than 1.

For many investors, the movement of stock in cyclical industries provides a great opportunity to earn revenue on the stock by buying when there is a downturn and selling when there is an upward trend. For a novice investor, this may seem like a fool-proof strategy but be cautious, as it is almost impossible to tell when there will be a downturn in the market.

Cyclical industries usually may include durable goods (that last for a long time into the future), non-durable goods (that have a short shelf life) and services like an automobile, construction, and travel.

When the economy is doing good and the people are earning well, they may spend a lot of money on buying a new car, constructing their new house or even plan fancy off-shore travels. However, when there is a downturn in the economy, people may prefer to hold these expenses for another year or two.

Around 75 percent of the stocks listed in the stock exchange are cyclical and follow the market trends. A few examples include Tata Motors, Honeywell Automation India Ltd, Shree Cement Ltd, SAIL, Hindalco etc.

What are non-cyclical stocks?

While cyclical industries may seem like a good investment, every good offense needs a defense, hence, it is important to balance out your portfolio with non-cyclical or defensive stocks. During a boom, people splurge on goods and services such as travel and cars. But during a slump, people stop spending on purchases that they don’t consider a basic necessity, instead they focus their spending money on food, water, and shelter.

non cyclical industryDuring an economic recession or depression, the revenue and cash-flows and share price of non-cyclical companies continue to do well because they are industries that produce the basic needs of life that people will continue to consume.

In addition to basic needs, non-cyclical stocks also include those goods that are addictive such as tobacco or alcohol which can put ethical investors in a tricky situation as these industries do well even during a slump and reduces the number of industries that they can invest in.

Defensive stocks include goods and services in industries that are not affected by market fluctuations such as utilities, food, and medicines. It is basically any good or service that people will buy whether or not the economy is doing well. A few examples of defensive stock companies include Hindustan Unilever (HUL), Marico, HDFC Bank etc.

Bonus: The top-down strategy

There are two main investing strategies in the market, the top-down approach, and the bottom-up approach. The top-down approach involves looking at the economy as a whole and picking stocks that do well during certain economic conditions. This strategy requires the investor to have a good understanding of the macroeconomy along with its various sectors and industries to know what industry will perform well during the different business cycles. They also need to assess the inflexion points in the economy, that is when a certain stock price is expected to go up or down. For cyclical and non-cyclical stocks, top-down is the most commonly used strategy.

The bottom-up approach, on the other hand, involves looking at the stock individually and making investment decisions based on independent parameters.

When using the top-down approach, there are many indicators that investors can use to study the market. The first and most obvious metric is the GDP (Gross Domestic Product). This is the total value of all the goods and services produced in the economy and gives us a good understanding of the overall economic health.

Another great indicator is the ‘Purchasing Manager’s Index (PMI). This is a survey conducted among the purchasing managers in different sectors and industries in the economy. The PMI provides the investor with information on how the businesses are currently performing and which direction the economy is headed.

A third metric is the Consumer Price Index (CPI). This will give an investor insight into the changing price levels of goods and services in the economy and is a reflection of the state of the economy.

The top-down strategy is considered successful when the cyclical and defensive stocks are in perfect correlation with each other. A 100% correlation would mean that the stocks move in synch with each other while a -100% correlation means that the stocks are still in sync but move in the opposite direction.

During the 2008 recession, luxury goods such as Ford cars faced a huge decline in the value of their stock as people stopped spending on expensive items when the economy was down but at the same time, the stock for beverages such as Coco-Cola continued to do well as people spent money on this regardless of the business cycle.

Also read:

Conclusion

It is important for every investor to have a balanced and diversified portfolio with both cyclical and non-cyclical stocks.

Cyclical stocks include more luxury goods and hence a provide a higher return than non-cyclical stocks. However, the investor needs to study the market carefully and have a good tolerance for risk. Defensive stocks are safer investments but provide lower returns but are better for investors looking for safe investments Remember low risk, low return.

7 Best Newspapers for Stock Market India to Read cover

7 Best Newspapers for Stock Market India to Read!

7 Best Newspapers for Stock Market India to Read!

Every active investor and trader needs to stay updated with the latest news about the stock market. Missing one key information – a big corporate announcement, new deals/projects, change in management or any scam/fraud allegations about your favorite stock may result in a change in profitability in your portfolio. But how to stay updated with the current happenings and events in the stock market? A simple answer is by reading newspapers.

We all know that reading newspapers is a good habit that can provide a great sense of educational value as well as keeping us updated with the latest happenings around us. A newspaper is basically a periodical publication containing well-written information about current events. Moreover, with the availability of the ‘e-Newspapers’ i.e. online newspapers, accessing these are a lot easier. In this article, we are going to discuss seven best newspapers to read and stay updated about the Stock Market. Here they go:

7 Best Newspapers for Stock Market India

1. Business Standard 

business-standard

The daily newspaper Business Standard (also available as an e-paper) is the first preferred choice of serious business readers. It is one of the largest Indian English-language daily edition newspaper published by Business Standard Ltd. The Business Standard provides the latest news about Economy, Finance, Current Affairs, International Management, Personal Finance, etc. You can check out stock prices of India’s leading companies, Sensex, Nifty, Gold, Silver, etc. They also offer an Android App available in the google play store. 

2. Livemint

Livemint Livemint is one of my favorite newspapers to read and stay updated with the stock market. The reason is its clear editorials and nicely designed pages.  This newspaper is published by HT Media, a Delhi-based media group that is controlled by the KK Birla family and also publishes Hindustan Times. Livemint provides information about Markets, Companies, Money, Start-ups, Mutual Funds, Investment Queries, Insurance, Technology and more. They also offer e-Paper, you can log-in and get the latest news.

3. The Hindu Business Line

hindu-business-line

The Hindu Business Line is an Indian business newspaper published by the publishers of the newspaper The Hindu located in Chennai, India. It gives daily market live updates about Sensex and Nifty, information about commodities, Forex, Gold & Silver Science, World, Sports, Real Estate, and also Trending topics in the Market. The e-Newspaper for the Hindu Business Line is also available.

4.Reuters

reuters

Reuters is the world’s largest international multimedia news. It provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world’s media organizations, and directly to consumers. Here you can get updates about Stocks, Business, Technology, Sports, Entertainment, etc. You can easily subscribe to their newsletters. The Reuters app is available in the play store. 

5. MoneyControl

money-control

Moneycontrol is one of the most popular websites to read financial news in India. It is owned by E-EIGHTEEN Dot Com Ltd., a subsidiary of the media house TV18. Though it is not exactly a newspaper, Moneycontrol financial portal offers end-of-day stock prices, stores of news (text and videos), analysis, data and tools on investing (across diverse asset classes), the business sector, and the economy. It also provides a few recommended Market Podcasts like ‘‘A morning walk down Dalal Street‘. You can also track the Market using Moneycontrol mobile app. 

6. The Economic Times

the economic times

Originated in 1961, The Economic Times is an Indian daily newspaper headquartered in Mumbai, India in English-language published by Bennett, Coleman & Co. Ltd. They provide the latest news updates on investing, Economy News, Business News, technology, etc. They offer a separate Economic Times Market section for their readers to stay updated to the stock market and financial world. Apart from the newspapers, the Economic Times also provides e-edition for the convenience of the user.

7. Bloomberg Quint

Bloomberg Quint

Bloomberg Quint is a multiplatform, Indian business and financial news company. It is a joint venture of Bloomberg News and Quintillion Media. They provide Bloomberg’s global leadership in business & financial news and data with Quintillion Media’s deep expertise in the Indian market and digital news delivery. Its main content is based on high-quality business news, market-moving news, top trends, economy news, international finance news, and compelling perspectives. They also offer market Podcasts.

Also read: 7 Must-Know Websites for Indian Stock Market Investors.

Bonus: 3 Additional Newspapers for Stock Market India

8. NDTV Profit

NDTV Profit

New Delhi Television, popularly known as NDTV, is an Indian television media company founded in 1988 by Radhika Roy, a journalist. NDTV gives updates like news, videos & photos about Business, Stock, Entertainment, stock talk, Sports, etc.  They also have an app that is Faster and Lighter, with features that ensure you get the latest news notifications. 

9.Yahoo finance

yahoo finance

Yahoo! Finance, a part of Yahoo!’s network, provides financial news, data, and commentary including stock quotes, press releases, financial reports, and original content. It provides real-time streaming quotes for many exchanges and provides stock information like their financial statements, latest announcements, updates, etc. Yahoo Finance also offers online tools for personal finance management which are very useful for its readers.

10. Google Finance

google finance

Google Finance is not exactly a publication but a news aggregator. On Google Finance, you can find all the latest financial information about stocks, market news, economy news, and top stories around the world in Finance. 

Closing Thoughts

There are hundreds of newspapers available in the market to read and stay updated with the Stock market. However, not all are equally good. Out of all the ten Best Newspapers for stock market India to read, my favorite ones are Livemint, MoneyControl, and Bloomberg Quint. Which one is yours? Comment below to answer. Further, if  I missed any popular newspapers that provide genuine information about the stock market, then please do comment below. Cheers!

first mover advantage

Is First Mover a competitive advantage for a firm?

Zerodha was the first mover in the discount broking industry. Unlike the traditional brokers like Sharekhan, ICICI Direct, HDFC sec, etc. who charge large brokerages for their trading services, Zerodha offers a low brokerage charge. And as of 2019, Zerodha has outranked all these big players to become the biggest broking firm in India.

While reading this incredible success of Zerodha, one obvious question among people is whether being the first mover in the discount business model, the biggest reason for the Zerodha’s success? How big is the actual competitive advantage for the first movers? In this post, we are going to discuss the same.

Who are First Movers?

First movers are those companies who are the ‘first’ in line to offer their products or services in the market. They are the ones to innovate and develop a product/service which was not available previously in the market. Further, they do not face similar competition like the ones in the established markets.

In many cases, such companies can build great brand recognition and loyal customers for their products/services during the time gap, i.e. before the competitors enter.

An important point to note is that first-mover advantage is here referred only to those companies who are able to scale and make establish a big market, not the ones who just started the idea but didn’t make it large.

I mean, Amazon might not be the first company in the online bookselling industry. A lot of small businesses might be selling books or their products online before its establishment. However, Amazon was the one who was able to capture a significant market, make an impact and hence, can be considered as an actual first mover in this industry.

A few other examples of the first movers in their respective industry can be Kindle (ebook selling), eBay (online auction), Apple (iPhone & iPads), Uber (taxi booking & ride-sharing), etc.

In India, companies like Flipkart, Oyo, Olx, Ola etc. are the ‘Regional’ first movers. Although they copied the concept from their global rivals, however, being the first mover in the Indian subcontinent region gave them an advantage.

Advantages of First Movers

Being the first mover, a company can enjoy a lot of benefits compared to the later entrants. Here are a few of the best advantages of first movers:

  • Brand recognition: First movers can create a strong impression which can help them build a passionate customer fan-base and create a big brand recognition even before any competitors enter.
  • Price & Benchmarking: The first movers enjoy the advantage of setting up their prices for the newly offered products/services and creating their own industry standards/benchmark.
  • Technological advantages: Being the first mover and having no competition allows a company to give sufficient time to build a perfect product and get a head start. Further, they can also file proprietary or patent rights to continue enjoying technological advantages.
  • Control of resources: First movers can control the resources by doing a strategic partnership (or exclusive agreements) with vendors, supplier; renting the best locations, hiring most talented employees in their industry, etc. The later entrants may face difficulty to find similar resources.
  • Switching cost: If the customer has to cost a lot of money, time, efforts, or resources to switch from one product to another, it is considered as the switching cost. First movers can enjoy the benefits of switching cost by launching their products earlier. Here, even if a better product/service is available, the customer may stick with the old company, if the switching cost is high.

Also read: SWOT Analysis for Stocks: A Simple Yet Effective Study Tool.

Disadvantages of First movers

Although being a first-mover looks a lot advantageous for a firm, however, it has its downsides too. Here are a few cons of being a first mover.

  • In most cases, the later entrants or competitors can reverse-engineer, copy, or even improve upon the product/services offered by the first movers.
  • The first movers might take a lot of time to learn and innovate. On the other hand, the following entrants generally have a lower learning curve and can build the product faster.
  • The first movers might find it challenging to persuade people to try new product/services. However, later entrants can reduce this education cost.
  • The first movers can also face a lot of competition from the free riders. As the Imitation cost < Innovation cost, a lot of copy-cats can join the expanding industry to enjoy the upwards ride and reduce the profitability of the first movers.
  • The second movers or the competitors can avoid the failed steps made by the first movers and hence reduce their cost/expenses.

Is First mover a competitive advantage for a firm?

In the investing world, the competitive advantages are the ones which are sustainable for the long term, not for a few years.

Admittedly, being the first mover is advantageous and have a lot of perks. However, over time, the later entrants can destroy this advantage through reverse-engineering, workforce mobility, technical advancement, or even by merely copying the products/service offered by the first mover.

Also read: Pat Dorsey’s Four Moats for Picking Quality Companies

Closing Thoughts

There’s one thing sure in this competitive world. First movers will not always be the only player in any industry. As they grow, a lot of new companies will enter that industry and try to eat their profits.

Further, a lot of big successful global giants were not the first movers. For example, Google was not the first search engine. It followed the model of Yahoo or Infoseek. Similarly, Facebook was a later entrant in the social media world after Friendster and Orkut. Even Starbucks or Cafe Coffee Day (CCD) is a copied business model of the famous local coffee chains. Still, these companies were able to dominate the market and establish a big brand and customer network.

Anyways, in a few cases, if the first movers can dominate a big market and establish a loyal customer base, they may retain a healthy growth level and profitability, despite new entrants.

Revisiting 2008-09 Economic Crisis - Causes & Aftermath

Revisiting 2008-09 Economic Crisis – Causes & Aftermath!

The Financial Crisis which occurred between the time period of 2008–2009 was a mammoth economic crisis encompassing worldwide. It was an enormous setback to the global financial system and had a series of aftermath. The crisis is contemplated as the grimmest financial crisis since the Great Depression of the 1930 s by many eminent economists around the world.

The fracture of the economic system-induced monetary damage on millions of Americans and gradually escalated to other economies. The reasons and causes behind the catastrophe are not solely driven by one factor, but it is a conflux of several prominent factors. Let’s look at it step by step what caused the financial crisis of 2008!

What caused the 2008-09 Economic Crisis?

— Sub Prime Mortage

Subprime Mortgage commenced in the year 2007 with a crunch in the Subprime Mortgage Market in the United States. Subprime Mortgages and the Subprime Meltdown are usually termed as the felons for the onslaught of The Great Recession.

A subprime mortgage is generally remitted to borrowers with low credit ratings because the lender perceives the borrower with high-risk appetite regarding defaulting on the loan. Lending organizations often put a burden of high-interest rates on subprime mortgages compared to prime mortgages due to the exposure to steep risk.  Such mortgages didn’t require any down payment or, any proof of income.

Later, when the housing market took a crashing downturn, the borrowers found themselves in a precarious situation with their home values lesser than the value of their mortgage. Many of the borrowers lapsed because the associated interest rates were variable in nature according to the clause.  Initially, the lending institutions provided loans with low-interest rates but they swelled over time and as a result, the borrowers were underwater. Due to ballooning up of interest rates upon the principle, it was difficult for the borrowers to pay down the principal amount. Many lending institutions were flexible in the provision of these loans due to high capital liquidity and a golden opportunity to make a lump sum profit.

Immense greed also led them to pool in the mortgages and sell off to the investors. The heightened increase of population who could all of a sudden purchase mortgages resulted in a situation of a housing shortage which led to a rise in housing prices. The soaring demand for the housing market made way for easy sanction of loans. When a large chunk of people started defaulting on their mortgages, the loan sharks lost all their lent money and so did many financial institutions that had invested extensively in the pack of mortgages. The subprime mortgage deadlock continued to exist and eventually transformed into a global recessionary situation as its repercussions beamed thoroughly in the financial markets and economies around the globe.

— Lehman Brothers

lehman brothers bankruptcy 2008 09

The highly talked about Financial crash of 2008 had elongated lineage but it wasn’t palpable until September 2008 when its flak became quite noticeable to the world. The news of the bankruptcy of Lehman Brothers is heavily claimed to be the torchbearer of the great economic crisis.

The filing of the bankruptcy was one of the grand incidents in the pages of history. Lehman was the fourth-largest. an investment bank in the USA with $639 billion in assets, $619 billion in debt and consisted of 25,000 employees all over the world. The investment bank is considered to be the largest victim of the Subprime Mortgage generated Financial Crisis that mopped away all the financial markets in the year 2008. The deflation of Lehman’s was an extremely crucial event that tremendously added fuel to the fire and eroded an approximate amount of $10 trillion in market capitalization from global markets.

However, in spite of its stamina to emerge victorious from previous disasters, the downfall of the U.S. Housing Market completely brought Lehman to a rock bottom. Lehman’s hovering amount of leverage and its extensive portfolio full of mortgage securities pushed it to extreme vulnerability under declining market conditions. Finally, on 15th  September 2008 Lehman Brothers, filed for bankruptcy. The further announcement of “No Bailouts”  intensified the panic-stricken scenarios. Lehman’s paralysis agitated global financial markets for days, weeks, months and years.

Also read: The Collapse of Lehman Brothers: A Case Study

— Politics and Other Factors

Since the era of the 1980s, bankers and politicians have constructed a peevish partnership. Politicians had dramatically bribed banks into generating absurd loans to un-creditworthy borrowers on the pretext of the confirmation of bank mergers according to the Community Reinvestment Act. Politicians effectively advertised the expansion of the American idea of homeownership without calculating the possible risks and negative consequences.

Bankers were paid ludicrous amounts of money to securitize pernicious subprime mortgages. On the other hand, Rating Agencies swept in profits by labeling virulent securities as worthy of investment ie. “A” grade. The firms that followed the herd and gave into the riskiest hazardous types of subprime mortgages, securities, and derivatives were the first to backslide when the house of cards stumbled one after the other. CITIGROUP is the most prominent example of falling under this category!

AFTERMATH: 2008-09 Economic Crisis

— Crisis on Banking Sector

lehman brothers crisis

The financial crisis viciously slaughtered the banking sector where a large number of banks had to be bailed out by governments while others were mandated into unions with stronger heads. Institutions like Merrill Lynch, American International Group, Halifax Bank of Scotland, Royal Bank of Scotland, Fortis, Bradford & Bingley, Hypo Real Estate, and Alliance & Leicester were apprehended to pursue the road to bankruptcy but the announcement of a US Federal Bailout worth $85 Billion rescued them from absolute collapse. In spite of the “Bailouts” by the US Federal government, it became much more harrowing to take loans from the bank.

— Effect on the Equity Market

The 2008 crisis was a worldwide anomaly as it severely disturbed almost all the economies with a heightened degree of invasion. When the gigantic investment banks and eminent insurance companies were under immense pressure,  they started selling equities to get some liquid cash for debt payments. The selling pressure induced a relentless crash in the equity markets around the globe. Since almost all Capital markets consist of foreign institutional investors, the impact was noticeable everywhere. The Asian markets in China, Hong Kong, Japan, and  India were promptly affected and became parched after the U.S. Sub-Prime Crisis. Whenever there is a crucial correction in the markets in the USA it triggers all other markets as well because the rate of return in stocks is extremely correlated globally.

Also read: How Does The Stock Market Affect The Economy?

— Investor’s Catastrophe

The Bank Stocks went through a bloodbath where their respective dividends were ripped off and consequently led to the loss of wealth amongst investors. The majority of the population had much of their money parked in bank stocks because they were generating such high dividends.

— Declination in Consumer Wealth

The financial crisis caroused a critical role in the downfall of grass-root businesses and declination in consumer wealth. It also completely contributed to the European Sovereign-Debt Crisis which later manifested into a full-swing international issue and cornered the world’s banking system towards a deflation. Economies paced down during this phase as there was a decrease in international trade and the tightening of credits.

— Fall in Income & Opportunities

The Great Recession immediately fueled cutbacks in many reputed and non-reputed companies and there was a considerable fall in income. Great Recession restricted the opportunities for career enhancement and income raises. Financial flexibility was tremendously tampered by the Great Recession to a vast extent.

unemployment economic crisis

— Calamity in Economic Policies

The engineering of economic policies also altered thoroughly. Central Banks & Governments took on additional functions in regulating the financial system to managing monetary policy and also deployed new apparatuses like “Quantitative Easing” and ‘Austerity’. Quantitative Easing synthetically escalated the values of many fiscal assets, benefitting the existing wealthy section of the society. On the contrary, “Austerity Programmes” declined the aids and support available for the people belonging to the lowest rung of the income distribution. Austerity Programmes also led to the creation of high unemployment and curtailed public services.

Amidst the financial crisis, due to unfair structural reform, “Rich became richer” and “Poor became poorer.”

Corporate Social Responsibility (CSR) - What does it actually mean cover

Corporate Social Responsibility (CSR) – What does it actually mean?

Corporate social responsibility, which is known as CSR, is a type of mechanical business model that can help a company to be socially accountable and responsible to all the stakeholders and the public related to the interests of the company. With the help of corporate social responsibility, a company can be socially accountable to the people, and it means that it owes something to them. It is a type of corporate citizenship that a company has over time.

First of all, CSR helps in image building formation. 

With the help of the corporate social responsibility, a company can be conscious of the type of image that it creates to the society and impacts on the well-being of the people, directly and indirectly. There is a lot of impacts that the company can source out to the public. This can be done with the help of the economic, social, and environmental kind of ways.

If your company wants to engage in the work of corporate social responsibility, then they have to socially responsible for the well-being of the public whose interest lies in the company. It has to operate in such a way that it can be good and enhance the presence of the company, socially or culturally.  

Corporate social responsibility in India

When it comes to India, then it is the leading source of business from all around the world. It is the first country that has made corporate social responsibility CSR mandatory, which the help of passing a law in the amendment in April 2014. With the help of these companies act passed onto by India, now businesses can directly invest their profit into the area of the society, they can help the community to have a better formation for the further source, and in the best way, CSR becomes a hunger for every company out there in the market.  

tata trusts Corporate social responsibility

Company’s Act passed for maintaining CSR by Indian Companies

According to the whole of the company’s act, which was passed onto by India, it was sourced that the net worth of any business will now be a part of the CSR here. To the net profit of about 5 crores made by any company, around 2% of the same target is to be spend around for the well-being and management of the society as a whole so that the community can profit from the revenue which is managed by these companies.  

Before the same, India made it mandatory for the companies to disclose all their corporate social responsibility reports to the stakeholders and the shareholders of the company. 

They should be liable and should be a part of the company’s profit-earning capacity as well. These were included for the projects related to the company’s activities and the projects that were related to the activities taken by the company on-board.  

It was recommended all by the CSR committee as a whole to cover all the items listed in the source of the Companies Act, which was stated during the time of amendment. 

Also read: What is Corporate Governance? Principles, Examples & More

What is the whole methodology of the CSR Technique?

With the help and including CSR for companies out there, it can help them to profit and earn them for the scope of the long run. It is the procedure of assessing all the impact of the organization on society and then slowly evaluating all their responsibilities. These responsibilities, which are managed by the group of organizations that uses CSR is to help the community become a better place by distributing the part of the revenue which is made and even sourcing out the following aspects which are presented below.

1. Channeling the needs of the customers

The customers are the central part of it. With the help of the customers, an organization can run smoothly. With the use of corporate social responsibility, a business can go in for the long drive of run with the source of the customer that they have. It can help them to the pan and rule out the odds.

2. Helping the suppliers to earn

Another one which comes on the second lot is the suppliers of the business. A business can only profit when the suppliers are pleased. These are done with the help of corporate social responsibility. When the part revenue is distributed, the suppliers can be happy and supply more for the business and include their service for a longer time.

3. Creating a proper work environment

The environment where the business is incorporating should be steady, as well. If the climate is not stable, then a company cannot lead its growth and go towards the best. This is why corporate social responsibility can help to enhance the working environment, inside and out of the organization.  

4. Helping the communities

The communities are a huge part of society. These are the forums and groups through which the whole nation is based. If the business has to go for a longer duration, then they have to please the community members. This is done with the source of CSR and maintaining a cordial relationship with the communities of the society for a better outcome of results from altogether. The cities are the prime, and any organization should know it.

5. Providing comfort to the employees

The last one who lies here is the employees of the organization. If the working members of the organization are pleased, then only a business can run. Labor is what every organization needs out there and especially if they are skilled enough to do the job. CSR helps to have a proper relationship between the business and the labor.

Also read: Top 10 Companies in India by Market Capitalization

Legislation management for CSR

The most effective plan of corporate social responsibility for any business is to create legislation and to comply with it. Their investment for the source of the company should be a part of the whole society, and every decision that a company takes, the community should be a wholesome concern. The investments are a part of growth for any type of business out there, and only when the growth helps the community to lean towards the work of a company, the organization can have a more profitable revenue for the working years.  

Organizations in India always thrives for corporate social responsibility

There are a lot of organizations located in India which thrives on the source of corporate social responsibility and have benefitted from the whole idea. They have to take special CSR initiatives altogether, which can help them to integrate the cause and to work on the entire business process on the run. With the upcoming years in the market, all these have become an endless source of income for the business as a whole, and it has helped them to gain revenue.  

Besides growing your business, you should respect the culture and the beliefs of the people who are around you. With the help of respect, it creates a massive value of the business in the eyes of the public. It can help them to shape the business, which can be sourced out to a higher chance of collecting more revenue.

Businesses tend to profit more

With the help of CSR, an industry can source out their impending management and shape their responsibilities altogether. It can help them to understand the community at a large and also tend, adhere to the needs of the city. Companies do have a specific source and type of demand, which can help the department and the teamwork towards the development of particular purposes.

CSR management in Indian companies

CSR programs help the whole business to work for separate budgets and then support them in a wholesome way. It can improve the business to scope out the primary source of profit by looking after the well-being of society. When it comes to managing the source of work, then companies do have a specific source of the department which handles the work of corporate social responsibility. These are the departments that set up the policies of the CSR and then come up with freshly integrated ideas.

What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

What is the TOWS Matrix? And how it is used?

Apple, Amazon, and Google — we all have heard the renowned names of these gigantic companies and are quite familiar with their products. They have been sustaining through the zig-zags of an economy and have successfully created a brand value since their establishment.  All three companies must have done something right which helped them to stay in the game for the long run, unlike other companies that couldn’t sustain or, have fizzled out. In order to find out the answers to such statements, analysts take the help of marketing strategies.  Today, we will discuss one such theory called TOWS Matrix to find out the awaited answers. Well, without further adieu, put on your reading glasses and jump in!

TOWS Matrix can be interpreted as a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis and is an abbreviation that stands for Threats, Opportunities, Weaknesses, Strength. It was invented by an American business professor called Heinz Weirich in 1982 to examine businesses from a practical approach in reference to administration and marketing. The evaluation is done by amalgamating the external opportunities and threats with a company’s internal strengths and weaknesses.

What is the TOWS Matrix?

TOWS Matrix begins with an audit of external threats and opportunities. Such scrutiny gives a clear insight and helps to adopt long term strategies. Thereafter, the internal strengths and weaknesses of a company are taken into consideration. In the next stage, the internal analysis gets intertwined with external analysis to devise a strategy.

TOWS Analysis goes way beyond the conventional SWOT Analysis and aids organizations to remain one step ahead in the ever-changing competitive landscape. The TOWS Matrix can also help in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

tows matrix analysis

Although internal and external factors are incompatible features, there still exists a balance between them. Strengths and Weaknesses fall under internal factors and consist of HR policies, manufacturing processes, goals and objectives, attributes of the products and services offered to the target market, core values, work culture, staff, and fundamentals of the company.

On the contrary, Opportunities, and Threats fall under external factors and consists of government policies, dynamic nature of the market, evolving tastes and preferences of the customers, competition in the market, fluctuation rates of the raw materials required for the production and etcetera.

Now, we will move on to the discussion where we will discuss the four potential strategies of the TOWS Matrix. The four TOWS strategies are :

  • Strength/Opportunity (SO)
  • Weakness/Opportunity (WO)
  • Strength/Threat (ST)
  • Weakness/Threat (WT)

Strengths and Opportunities (SO) / Maxi-Maxi Strategy

The aim of a Maxi-Maxi Strategy is to utilize internal strengths to make optimum use of the external opportunities available to the company. In other words, the company has to utilize the strengths by using its resources to cash in on potential opportunities.

For example, if a  company has reasonably established a brand name in the market and has won the hearts of the consumers, there lies a golden opportunity to explore the new market locations or introducing a new line of products and services for the same target market. Such a step can turn out to be the best for the upliftment of the firm.

TOWS Matrix internal external

(Image Credits: B2U)

Strengths and Threats (ST) / Maxi-Mini Strategy

The aim of a Maxi-Mini strategy is to maximize the strengths of a company while minimizing the threats with the support of these strengths. Thus, a company should take advantage of the internal strengths to avoid massive external threats. This strategy indicates that the management of the organization can employ all the internal strengths to counter any of the possible threats that can come in the way of the business as obstacles.

Example: In the market, there is always a cut-throat competition amongst peers or, between new and old entrants. In such a scenario, to beat the competition, the lagging company needs to take advantage of the internal strengths such as quality, manufacturing techniques, legacy and customer service.

Weakness and Opportunities (WO) / Mini-Maxi Strategy

The Mini-Maxi strategy attempts to minimize the weaknesses and to maximize the opportunities. The aim is to revamp internal weaknesses by making use of external opportunities. The management of the company will detect various alternatives to look past the weaknesses and take control of the opportunities that come up in the course. It is always a wise decision to decline or correct the weaknesses and untap the opportunities.

Example: If the company doesn’t possess any expertise in any of the business domains which is necessary for the growth and is gifted an opportunity to ally with another company that has the needed expertise, it works as a fairly convenient situation for both the companies.

Weakness and Threats (WT) / Mini-Mini Strategy

The aim of the Mini-Mini strategy is to minimize weaknesses and minimize threats. This is definitely the most defensive spot in the TOWS Matrix. It is mostly utilized when a company is in a  deplorable position. In such a scenario, the company operates in an aggressive environment and has little or no development opportunities. The mini-mini strategy is nothing but a pessimistic style of liquidation of a company.

EXAMPLE: A company has lost its shine and glory and has lost the faith of the stakeholders. Thus, there exists a threat of losing out on funding and investment by investors. In this case. it might close down poor-selling products, cut down underperforming employees and build a hostile technique of selling. If optimistic, the company might look for merging with another suitable company to leverage its expertise and resources for hanging on to funding.

TOWS Matrix – Apple INC

apple steve jobs

Let us now apply these four strategies of TOWS Analysis to a famous company called Apple.

Apple Inc. is an American multinational organization specialized in technology and has its headquarters in Cupertino, California. Apple fabricates, builds and sells computer software, electronic products, and online services. The tech giant was established by Steve Jobs,  Ronald Wayne, and Steve Wozniak in April 1976. It is considered as the world’s largest technology company by means of revenue and is also one of the world’s most valuable companies.

According to statistics, it is the world’s third-largest mobile phone manufacturer after Samsung and Huawei. Apple’s renowned products consist of the iPad tablet computers, HomePod smart speaker, iPod portable media player, iPhone smartphone, Mac personal computer, Apple Watch smartwatch, AirPods wireless earbuds, and Apple TV digital media player. The online services provided by Apple are iTunes Store, Mac App Store, Apple TV+, iCloud, Apple Music, the iOS App Store, and  Apple TV+. In Fiscal YEAR 2018, the worldwide revenue of Apple totaled to $265 billion.

The strengths, weaknesses, opportunities, and threats of Apple are mentioned below. After glancing through them, we will begin performing our TOWS Matrix according to the rule.

— Strengths

  1. Apple is known as a Market leader and thus, maintains a high standard across several products and services. It is the most trusted brand in the entire marketplace.
  2. It has a strong brand image and thus helps the audience to differentiate Apple from other competitors and positively influences the purchasing decisions.
  3. It possesses extensive financial strength and thus has higher profitability and liquidity.
  4. Apple has also a highly innovative and highly sophisticated supply chain which helps in maintaining efficiency.
  5. It also has High-profit margins because of the consistent sales of its popular products.
  6. The premium quality of its products allows Apple to enjoy a large and loyal customer base.

— Weakness

  1. Apple Products are not priced by keeping the competition in mind and can be afforded by a certain section or class.
  2. There is an availability of a narrow product range compared to its competitors.
  3. The products and services are only compatible with Apple products and are incompatible with the products of other brands.

— Opportunities

  1. There is a constant rise in demand and craze for mobile devices irrespective of the quoted price.

— Threats

  1. In spite of being market leaders, there has been an emergence of competitors.
  2. The cost of manufacturing has been constantly on the rise.
  3. There has been also a decline in the market share of Apple due to the falling demand of Laptops and Personal Computers.

— Strengths and Opportunities (SO) of Apple:

Since there has been an increase in demand for mobile devices, the company should increase its focus by concentrating on manufacturing and marketing to generate profit. Apple should also leverage its brand value and financial strength to enter into new products and consequently increase their sales and profit. Such a step will aid Apple benefit from its existing customer base and customer loyalty. Further, if it partners with other brands to mass-produce compatible products and create mutually advantageous relationships, it will highly assist Apple in hack into the customer base of other brands.

— Strengths and Threats (ST) of Apple:

Apple should build a diversified range of products to fabricate its customer base and diminish the pressure of competitiveness. Another most important point is to consider the cultural variance to retain the competitive advantage created by  Steve Jobs.

— Weakness and Opportunities (WO) of Apple

Since Apple has only high-end products, it should release a cluster of products at an affordable price to make it feasible for middle-class consumers. Creating a larger product sets and thereby, entering into a new product arena will also help Apple to serve new customer segments.

— Weaknesses and Threats (WT) of Apple

Releasing a range of competitively priced products to attract middle-class customers can change the scenario altogether to reduce the pressure from competitors. It should also widen the product sets and try to cash in on the capability of the existing supply chain to decrease the manufacturing costs.

Also read:

Advantages & Disadvantages of TOWS Analysis

We will now elaborate on the major pros and cons of TOWS Analysis.

Advantages of TOWS Matrix

  1. TOWS Analysis helps to stumble upon strategic ideas by interconnecting the internal and external factors for the organizations.
  2. It is cost-effective in nature.
  3. It’s user-friendly and can be performed by any layman after learning a few parameters.
  4. TOWS Analysis can be applied to any company irrespective of the industries and economies.
  5. It helps organizations to upgrade their strategies with changing dynamics.

Disadvantages of TOWS Matrix

  1. TOWS analysis becomes tough to handle if we are overloaded with information.
  2. On many occasions, TWOS Matrix doesn’t take the ever-changing competitive environment into consideration and can affect the main agenda of finding out strategies for business in attaining elevated profits, higher sales, creation of brand value and etcetera.

Summary

TOWS Matrix is a framework to assess, create, compare, and finally decide upon the business strategies. It is a modified version of a SWOT analysis. The TOWS Matrix helps in the generation of amazing ideas in relation to fruitful marketing strategies, decision-making, protection against threats, opportunities, diminishing threats, overcoming weaknesses and awareness regarding potential shortcomings.

The four TOWS strategies are Strength/Opportunity (SO), Weakness/Opportunity (WO), Strength/Threat (ST), and Weakness/Threat (WT).

TOWS Analysis can be applied to any company irrespective of the industries and economies. It is user-friendly and can be performed by any layman after learning a few parameters. However, the TOWS analysis becomes tough to handle if we are overloaded with information.

How to do a PESTLE Analysis? (Explanation & Example)

How to do a PESTLE Analysis? (Explanation & Example)

Hello readers! We are back with another interesting article that will help to enlighten your knowledge horizon regarding the nitty-gritty of strategic management for running a prosperous business.

Are you someone who is planning to take the road of entrepreneurship and set up a new business by quitting your 9 to 5? Then, this article is most definitely for you! Well, to start off, there are a lot of factors that are needed to take into consideration for establishing a start-up business. Interestingly, it is not only the startups but also the Blue Chip Companies who need to constantly gauge strategies for sustaining their businesses and make a prominence. Today, we are going to discuss a strategic management framework known as PESTLE (Political, Economic, Social, Technological, Legal, Environmental) Analysis which has emerged to be an important apparatus for scanning the internal and external factors impacting a business.

Let us first learn the definition to understand the concept of PESTLE Analysis.

What is PESTLE Analysis?

A PESTLE Analysis is a hypothesis under the category of marketing principles ensuring business growth and profitability.

Francis J. Aguilar, a professor at Harvard Business School is considered to be the founder of the PESTLE Analysis in 1964. However, it didn’t commence as PESTLE but started as ETPS and covered four broad factors namely  Economic, Technical, Political and Social aspects.

Initially, it was known as PEST Analysis. It is anatomy and a strategic management tool that helps to scrutinize the macro-environmental factors that may have a resonating influence on an organization’s accomplishments. The acronym PESTLE is the shortened form of Political, Economic, Social, Technological, Legal factors and Environmental factors. The concept largely helps companies to acquire a transparent insight into the intramural and extramural factors affecting their organization. It also provides a general overview of the environment from multifarious points before launching a new project, new product, new service, etc.

PESTLE Analysis is contemplated as the backbone of strategic management that interprets the approach of a company and defines an organization’s strategies and intertwined futuristic goals.  The theory can be applied to different industries in divergent scenarios because of its analytical flexibility. In order to conduct the PESTLE Analysis, it is utterly important to understand each letter of the “PESTLE” in depth.

PESTLE ANALYSIS Flow

— Political Factors

Political factors usually indicate the authoritative powers that a government possesses in the economy or, in case of a certain industry. Such factors consist of policies of the government, extent of political stability, foreign trade policy, fiscal policy, trade tariffs, labor law, health regulations, education system, environmental law, infrastructure, corruption, and etcetera. All these aspects need to be taken into account when evaluating the lucrativeness of a potential market.

Example: A government may levy a new tax policy or fiscal policy or trade tariffs in a new financial year which can affect the revenue generation of organizations to a large extent. Recently, the Government Of India has reduced corporate tax rates to 22% from 30%. Consequently, this move will help the top-notch companies to revive their profitability and would be a  good catalyst for luring investment from foreign investors. The announcement also arrives at a perfect time because major American organizations are involved in a trade war with China and are finding alternative global manufacturing pedestals.

— Economic Factors

Economic factors are crucial determinants and plays an important role in the performance of an economy. Such factors generally end up becoming a key decision-maker in the success or, failure of a company. A surge in the rate of inflation of any economy can affect the pricing pattern of a companies’ products and services. In addition, it also impacts the purchasing power parity of the consumers and brings about a change in the forces of demand and supply in the economy. The economic factors include inflation rates, exchange rates, interest rates, economic growth, gross domestic product, unemployment rates, economic growth and disposable income of consumers.

EXAMPLE: In  India, in the past few weeks, vegetable prices have skyrocketed and as a result, there is a rise in the rate of inflation. Consequently, due to the hike in prices, the purchasing power of people has gone down which ultimately indicates that there will be a fall in consumer demand.

— Social Factors

Social factors pin-point the social environment in relation to the industries and constitute the demographic features, customs, norms, and values of the population within the operating periphery of the organization. Social factors consider the population trends such as age distribution, cultural barriers, income distribution, the growth rate of population, lifestyle attitudes, career inclinations, and health consciousness.

All the above-mentioned aspects are very significant for marketing strategists when earmarking the customer bases. Apart from that, the factors also reveal information about the local workforce and their compliance to work under certain conditions.

EXAMPLE: In today’s era, the demand for junk foods like Pizza and Burgers has gone up extensively, especially amongst the younger generation. Thus, companies like Dominos, Pizza Hut, Burger King and KFC are churning out huge profits because of the consumers’ behavior. On the contrary, the same doesn’t hold true for the people in rural areas. This is how social factors affect companies’ revenue structure.

— Technological Factors

Technological Factors have relevance to modernization in technology which influences the performance of an industry. Such factors include a level of innovation, research, and development (R&D) activity, amount of technological awareness, technology incentives and automation. Technological Factors highly affect the decisions regarding entry/exit in an industry, launching of a new product and outsourcing production-related activities. Possessing a sound knowledge regarding technology helps companies from spending a lump sum amount of money on obtaining a technology that would become obsolete in the near future due to the innovation of newer technologies globally.

EXAMPLE: The business space is filled with cautionary sagas of large scale companies that became failures due to their inability to keep up with the dynamic technological innovation. One such prominent example is Kodak, a technology company that used to produce camera-centric products and hegemonized the photographic film market during most of the 20th century. The breakthrough in digital photography contributed to the catastrophic misfortune of their film-based business model.

— Legal Factors

Legal factors include laws such as health and safety laws, discrimination laws, safety standards, employment laws, consumer protection laws, copyright and patent laws and antitrust laws. Every company is bound to have awareness regarding the laws for the purpose of conducting ethical business. In addition, a business owner also needs to be aware of any possible alteration in legislation which may have an impact on the business in the long term. Interestingly, the set of rules and regulations varies from country to country. Analysis of legal factors figures out strategies based on the backdrop of the legislations. However, it is always advised to have an appointed lawyer or an attorney to guide through the complexities.

EXAMPLE: Nestle had to take away the packets of Maggi from the stores’ shelves after the  Food Safety and Standards Authority of India (FSSAAI) summoned Nestle because of their negligence to adhere with the laws of food safety. Regulators found lead content beyond the permissible limit in its instant noodle product.

— Environmental Factors

Environmental factors have appeared to become a pivotal character recently. They have become utterly valuable due to carbon footprint targets, scarcity of raw materials and pollution targets fixed by governments. Environmental factors include ecological facets like climate change, weather conditions, environmental offsets which highly govern tourism, agriculture, and farming industries. Especially, large-scale campaigns regarding the burning issue of climate change are leading to the change in operation and products of the companies. Therefore, practices of Corporate Social Responsibility (CSR) and Sustainability forms an integral part of the companies and is taking new shapes with each passing day.

EXAMPLE: Due to the imposition of government rules as a measure to curb global warming, regulations on fossil fuel industries have increased considerably and as a result, this move has started threatening the thriving coal, oil, and gas industries.

PESTLE Analysis Example — SONY

sony corporation

SONY is a Japanese MNC  and has abruptly metamorphosed into one of the dominant entertainment organizations in the world. Its versatile business products consist of electronics, entertainment gaming,  and financial services. The company is the owner of the largest music entertainment business around the globe and also a chief player in the film and television entertainment industry.

Political Factors

SONY is a world-class brand and has a prominent presence in several countries around the world.  The political scenario in different countries largely impacts the SONY’s success. As we know, political Stability ignites growth and political instability, on the other hand, paralyzes the rules and regulations of an economy. In Sony’s context, its supply chain is located in China. Thus, any kind of political disturbance in China will have a heavy influence on Sony’s generation of profits.

Economic Factors

SONY products fall under the category of luxury goods. Such goods are not items of necessity but are usually purchased when people want to splurge on themselves. In a nutshell, if you living paycheck to paycheck, a SONY product would not be a priority in your list of necessities. In another instance,  economic instability and the high rate of unemployment in a country will never attract buyers for the high-end SONY products. Consequently, the profits will touch a rock bottom. Therefore, it is crystal clear that a big giant like SONY extensively depends on stable and emerging economies to merchandise their entertainment products.

Social Factors

Traditions, culture, age distribution, taste, and preferences vary from nation to nation. SONY offers entertainment products beginning with movies to music which basically acts as an escape to reality. It is to be kept in mind that not every nation has the same pattern of entertainment. Therefore, it is extremely important for SONY to keep up to date regarding the buying trends of the consumers and consequently tailor the products and services fitting the requirements of the customers.

Technological Factors

SONY is a true blue technology company because every other product is correlated with the usage of technology in some way. The company’s  Video Game  Consoles are nothing but computer devices that produces video signal or,  optical image to exhibit a video game for multiple players. On the other hand, laptops help users to stay connected to social media and other websites on the world wide web. In today’s era, the availability of the internet has removed all the possible obstacles of communication and SONY has bagged this opportunity to market their products online. It has become convenient for the company to announce any new launch of products via the medium of the internet.

Legal Factors

Since SONY is an international company and sells its products across many countries, it also has to abide by the diversified legal regulations of different countries. Any failure to adhere to the legalization like labor laws to tax policies, the company might end up in serious legal trouble or lawsuits which can further affect their prosperous business.

Environmental Factors

Sony believes that their corporate pursuits will be possible when there is a practice of sustainable development and thus they are so full of conviction regarding climate change, conservation of biodiversity, renewability of resources and other valuable measures to save the environment. SONY has taken up initiatives regarding environmental activities since the 1990s.  In April’10, a new environmental plan was introduced by SONY to set up a sustainable community by accomplishing a zero carbon footprint by the year 2050.

We will now elaborate on the major pros and cons of PESTLE Analysis.

Advantages And Disadvantages of PESTLE Analysis

— Advantages of PESTLE Analysis

  1. PESTLE Analysis has a basic framework and follows a simple process for conducting an assessment.
  2. It furnishes a mechanism that allows an organization to pinpoint and cash in on golden opportunities and utilize them to reinforce a firm’s business model.
  3. It helps to diminish the impact and consequences of possible threats to an organization.
  4. It sanctions a company to examine the process of entering untapped markets both nationally and internationally.
  5. It helps to build a custom of strategic thinking for strengthening the company’s position.
  6. It is absolutely cost-effective and the cost to do any level of the assessment isn’t exposed to oscillations.

— Disadvantages of PESTLE Analysis

  1. PESTLE analysis cannot showcase the full picture because it only focuses on six factors that are external in nature. In strategic planning, one needs to go beyond these six factors which can provide internal insights as well.
  2. The Political, Economic, Social, Technological, Legal and Environmental factors are very dynamic in nature. Any shift in any of these factors can change the result of PESTLE Analysis drastically.
  3. PESTLE Analysis is time-consuming in general and requires loads of data. Each of the factors needs to be thoroughly examined to come to a conclusion and thus, takes up a lot of time.

Summary

PESTLE Analysis provides a basic framework and follows a simple process for conducting an assessment. It is a hypothesis under the category of marketing principles ensuring business growth and profitability. In order to conduct the PESTLE Analysis, it is utterly important to understand each letter of the “PESTLE” in-depth i.e. Political Factors, Economic Factors, Social Factors, Technological Factors, Legal Factors & Environmental Factors.

What is Porter’s Diamond Model of National Advantage

What is Porter’s Diamond Model of National Advantage?

Porter’s Diamond Model has been the exemplary work of Michael Porter, who first published about this economic model in his book, “The Competitive Advantage of Nations” (1990). This simple but effective model aims at explaining the cause behind the reason as to why one nation tends to be more competitive than other nations in relation to a particular industry. This book also tries to look into the matter of innovations in businesses that may be more conducive to one nation and might not be possible in others.

Porter’s Diamond Model, also known as the Theory of National Advantage, is used by different economic institutions to calculate the external competitive environment. This analysis helps in giving us an understanding of the relative strength of one business than the other. On analyzing the external environment, the causes for industrial advantages for some businesses in a particular place or region can also be deciphered. In simpler terms, the Porter’s Diamond Model attempts to answer the following basic questions:

  • How does one nation end up being the most competitive in regard to a particular industry?

In Porter’s model, this nation is referred to as evolving into a home base. Some examples that we can illustrate are that of ‘China’, being the home for the production of cellphones, Germany as being the home base for car manufacturing, etc.

  • How are companies of a particular nation or region able to sustain the advantages produced by competitive economies in a certain industry? 

Porter’s Diamond Model

The answers to the above – mentioned questions lie in the determinants identified by Porter that generates a competitive advantage as mentioned above. The four determinants enumerated in Porter’s Diamond Model are as follows:

Porters Diamond Model four determinants— Factor Conditions:

Factor conditions relate to the different types of resources that are present or absent within a nation. Resources can be typed into basic and advanced ones. The basic ones include useful natural resources and the availability of unskilled labor. Advanced or ‘created’ resources include specialization and skilled knowledge and expertise, availability of capital, infrastructure, etc.

For Porter, natural resources are of less important as compared to the created resources. Competitive advantage develops in nations and in particular industries that are able to create these advanced and specialized factors.

— Demand Conditions:

Demand conditions invariably talk about the ‘home demand’ which affects how successful a particular industry within a certain nation is. A strong home demand of industries in their own nations creates a large market for them and therefore, creates opportunities for them to grow.

More demands inevitably mean more challenges, but these challenges turn the companies toward innovation and improvement. The size of the market, the growth rate of the market, etc. are some indicators of the home demand.

— Related and Supporting Industries:

According to Porter, the level of success of one industry can be related to the success of related and supporting industries. In the present economies, the role of ‘suppliers’ is a crucial one. These suppliers help in advancing innovation processes through shared resources- technical and other types of aids.

In recent times, the booming of startups has stimulated the renovation. These startups have entered into innumerable mergers with various industrial giants leading to the creation of competitive advantage.

— Firm Strategy, Structure, and Rivalry:

The internal environment in which a firm is established determines how firms are created and structured. This structuring of the firm can be influenced by a number of factors- political, economic, and social. This structuring will form the basis of creating a strategy towards the establishment of the firm.

The level of competitiveness between firms of a particular industry in one nation is marked by domestic rivalry. The more intense the domestic rivalry, the more it will push firms toward innovations, improvement and global competitiveness. Domestic rivalry in the automobile industry between various Japanese firms such as Toyota, Nissan, Honda, etc. can be cited as a perfect example.

Also read: Porter’s Five Forces of Competitive Analysis – What You Need to Know?

Additional Determinants

Apart from the above four major determinants, two other determinants can be mentioned as having an influence on the creation of a competitive advantage in a particular nation. These two determinants are:

Porters Diamond Model six determinants

— Government:

The government plays a vital role in the success of a firm or company. It is the government that provides for technical and financial aid to companies for its growth. The government has been referred to as ‘a catalyst and challenger’.

Porter believes that the market is not meant to be in the ‘invisible hands’ but the government should regulate it in order to stimulate the creation of advanced factors and therefore, leading to the development of competitive advantage. Government policies, investment in infrastructure, funding, etc. are some ways in which governments help in intensifying home demands.

— Chance:

The role of chance has not been originally discussed by Porter but it has been included in the Diamond Model as there may emerge random events like some scientific breakthrough, natural disasters or wars that might affect the established competitive positions in the society.

Summing Up

To sum up, the above mentioned six determinants in the national context- factor conditions; demand conditions; related and supporting industries; firm strategy, structure, and rivalry; government; and chances, can accelerate or deaccelerate the rate of success of a certain firm of a particular industry in a particular nation.

This success can lead to the generation of home demand which in turn results in increasing competitiveness in the global market and therefore, creates a competitive advantage for a certain firm.

Criticisms on Porter’s Diamond Model

Discrediting Porter’s Diamond Model will not justify his contribution but we cannot ignore the criticisms his theory of competitive advantage has drawn upon.

Some critics have pointed out that the list of internal determinants is limited in nature as there can be many other factors that can be listed. In other arguments, it has been noted that the inclusion of external factors has been avoided. The main focus has been more on the domestic picture and less on the global level.

Some writers have even highlighted that this Diamond Theory is not universal in nature but rather limited as it has been based on the study of only ten developed nations. Therefore, it would not be an exaggeration to pinpoint that Porter’s Diamond Model mostly applies to the researched developed countries.

Lastly, drawbacks relating to the sole application of the model on material products and not on services have been pointed out. The model fails to examine how this model will apply to the service sector of the economy.

BLUE OCEAN STRATEGY meaning

What is Blue Ocean Strategy? Examples, Pros & Cons!

What is Blue Ocean Strategy? Examples, Pros & Cons!

Hello readers! It is a new day and we are back with a new topic of discussion exclusively for you all!

Almost all of us have been to beaches for a weekend getaway or long vacations! If not holidays, we have definitely come across visuals of oceans and seas on social media and televisions. Haven’t we? Well, oceans are vast, deep, massive, wide and are the most baffling natural wonders of the world. Proper explorations and researches can give way to incredible discoveries and provide us information about its scopes and untapped prospects.

In a similar fashion, a path-breaking strategy, known as Blue Ocean Strategy, was introduced by  W. Chan Kim and Renée Mauborgne. It is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. A Blue Ocean Analogy is utilized to unlock the wider, unfathomable, powerful and vast potential in the unexplored market space in terms of profitable growth. This strategic planning theory is an escape from the general notion of benchmarking the competition and focusing on lump sum figures.

What exactly is a Blue Ocean Strategy?

Blue Ocean Strategy is all about devising and acquiring the uncontested market forum by spawning a new demand.

Since the industries are in a state of non-existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd.

In other words, the strategy spurs companies to offer extremely valuable products to the consumers. Thus, it supports the company to incur large profits and surpass the competition. The price tags of the products are generally kept on the steeper side because of their monopoly. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent space.

The kind of leadership and management required to initiate a Blue Ocean Strategy differs from the management of corporations that have short-term ambitions and mainly concentrates on increasing shareholder value by pushing up the stock prices via buybacks, mergers, and acquisitions. The Blue Ocean Strategy can be applied to all the sectors or, businesses and is not limited to just one kind.

On the contrary to the concept of Blue Ocean Industries, there exists Red Ocean Industries. Let us understand the concept in brief before moving to further analysis.

Red Ocean Industries

Red Oceans are those industries that are currently in existence or, what we call the contested market forum.

In Red Oceans, there are well-defined industry perimeters that are known and out in open to all. Due to the acquaintance with the competitive rules and acceptance of the drawn boundaries, the market space gets crowded and there is a consequent reduction in growth and profitability. When the product comes under the burden of pricing pressure there is always a chance that a firm’s operations could come under notable menace.

Companies under Red oceans strive to outperform their rivals by grasping a higher proportion of existing market share at another company’s loss. In order to keep themselves afloat in the marketplace, proponents of Red Ocean Strategy concentrate on creating competitive advantages by examining the blueprints of their peers/competitors. Such a saturated market space makes way for a toxic competition which ends up as nothing but an ocean full of rivals fighting over a dwindling profit pool. Such firms mainly seek to capture and redistribute wealth instead of creating wealth.

These kinds of market forums can be correlated with the shark-infested ocean waters which remain spilled with blood. Hence, the coinage of the term Red Oceans. Thus, the business world has pulled up their socks and is striving to skip the “Red Oceans” to create their very own “Blue Oceans”.

Examples of Blue Ocean Industry

Let us learn how organizations that have followed the path of Blue Ocean Strategy has undergone outstanding growth and profitability!

1) UBER

Uber Cab is a brainchild of the Blue Ocean Strategy and has dramatically transformed the picture of the transportation industry by discarding the nuisance of booking cabs, denial of services, meter issues and unwanted arguments.

It is a ridesharing service that enables customers to book their rides with the ease of swipes and taps. It also permits users to trace a  driver’s progression towards the pickup point in real-time through the medium of a smartphone application called Uber App.

Uber devised a new market by the amalgamation advanced technology and modern devices. It tried to differentiate itself from the regular cab companies and in turn developed a low-cost business model that offers flexible payments, pricing strategies and generates good revenues for both the drivers and the company. In the initial stages, Uber was successful in capturing the uncontested market space but was eventually flooded by the competitors. In spite of that, it continues to command the market and is speedily expanding across the world. As of 2019, Uber approximately has 110 million riders worldwide and holds 69% of the market share in the United States.

2) iTunes

Apple headed into the space of digital music with its unique and eminent product ie. iTunes in 2003. In previous days, conventional mediums like compact discs (CD) were put to use to disseminate and listen to music.

When iTunes ventured into the market, it solved the basic problems which were faced by the recording industry. As a result, iTunes cut down the practice of illegally downloading music while simultaneously catering to the demand for single songs versus entire albums in a digitalized version. High-quality music at a reasonable price offered by Apple became a talk of the town. All the available Apple products have iTunes to download music and have largely ruled the market space for decades. It is also recognized for driving the growth of digital music.

These examples of the Blue Ocean Strategy can enlighten future startups regarding the execution of a  strategic planning scheme and successfully unlocking new demand.

How to find and develop/Launch them?

Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. When there is limited scope for further growth, businesses try and search for verticals for discovering new business lines where they can enjoy the advantage of uncontested market share or ‘Blue Ocean’.

In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The Four Actions Framework emulates strategic triumphs and guides towards the path of launching a Blue Ocean initiative.

The framework poses four key questions, namely:

A) Raise

It includes points that must be blossomed by industry in reference to the line of products, price tags and caliber of services. A startup must analyze the pros and cons of the existing organizations and their strategies for key aspects of differentiation.

2) Reduce

It points out the arenas of an organization’s product or, service which foreplays a crucial character in the industry but is not absolutely essential in nature. Therefore,  the proportion of the products can be curtailed without entirely eradicating them.

3) Eliminate

It points out the arenas of an organization or industry which could be eliminated absolutely for the purpose of cutting down the costs and also to fabricate a completely new market. At times, newly invented products can lead to self-assassination of the existing products and thus,  leads to an unwillingness to interfere with the current revenue source.

4) Create

It nudges the companies to shape up trailblazing products. The introduction of an entirely new product line or, service leads to the establishment of a new market and points of differentiation. Identification of the needs of the target market provides sound knowledge regarding the addition of unique measures and consequently tracking the progress for illustrating a Blue Ocean.

Now that we have discussed the Blue ocean strategy and how to find them, let us also discuss the pros and cons of this strategy.

Pros of Blue Ocean Strategy

Here are a few of the advantages of using the blue ocean strategy:

  1. Blue Ocean Strategy cooperates with organizations to find uncontested markets and avoid matured and saturated markets.
  2. It assists to move from the impediments of competing within the existing industry and cost structure and to gradually migrate towards constructive value improvement. In short, it demonstrates how to break free from the traditional strategic models and to expand profitability and demand for the industry by using the analysis.
  3. Value innovation is the backbone of a Blue Ocean Strategy. Value innovation is the alliance of innovation with price, utility, and cost positions. It eventually creates new value/demand for consumers and thereby, expands the chances of growth potential.
  4. Blue Ocean Strategy enables a fundamental transformation in mindset. It develops mental horizons and helps in recognizing the opportunities.
  5. Blue Ocean Strategy is based on “time and again” proven data rather than unproven theories. It is based on practical approaches that have proven results during live market executions.
  6. Products under the concept of the Blue Ocean Strategy doesn’t make a consumer choose between value and affordability. It is the simultaneous pursual of differentiation and low-cost theorem.
  7. Creating blue oceans is non-zero-sum with high payoff possibilities.

Cons of Blue Ocean Strategy

Let’s us also look at a few of the common cons of using this strategy:

  1. It’s quite difficult to come up with futuristic ideas and identify colossal and untapped markets.
  2. Nominating an articulate Blue Ocean Strategy is a result of a calculated and detailed research process backed by extensive analysis. It is to be kept in mind that there is no magic formula or, silver bullet.
  3. Venturing into a market in the early phase comes with baggage of risk. There is a high possibility that the customers might not understand the grass root of the products and services because of the absence of a fully developed technology.
  4. Production of a new market is never easy because an organization has to be smart and clear regarding its customer base and ways to impart education about new ideas, new products, and new solutions. It also requires clarity about the trade-offs, obstacles and the workforce.
  5. Opting for a different ocean i.e the Blue Ocean, requires a lot of patience, persistence trust, preparation, and faith. It is also extremely paramount to look at initial indicators for confirming the fact that “fishing”  is not being done in a dead sea.
  6. On finding a new ocean, other sharks from the saturated markets aka the Red Oceans and other adjacent oceans will be lured to the new market. Thus, building strategically defensive alternatives would be a wise step. Defensive alternatives majorly consist of brand power, technological advancement, and speed of execution.

Also read: What is a BCG Matrix? Explanation with Example!

Summary

Let us quickly summarise what we discussed in this article.

A path-breaking strategy known as Blue Ocean Strategy is a pacifist marketing scheme and is considered a strategic planning tool for assessing a business. It is all about devising and acquiring the uncontested market forum by spawning a new demand. Since, the industries are in a state of non- existence, there is absolutely no relevance of peer comparison. The strategy bags the new demand by familiarizing unique products with advanced features that stand apart from the crowd. Blue Ocean approach shuns the ideology of outperforming the competition and asserts to recreate the market boundaries and operate within the nascent.

These days, the Blue Ocean Strategy becomes the need of the hour when supply surpasses demand in a market. In order to find and identify an attractive  Blue Ocean, one needs to take into consideration the “Four Actions Framework” to devise the aspects of buyer value in creating a new value curve. The framework poses four key questions, namely, Raise, Reduce, Eliminate & Create.

That’s all for this article. Let me know what you think about the blue ocean strategy in the comment section below. Cheers!

Micro vs Macro Economics cover

Micro vs Macro Economics -What’s the Difference?

Economics is the study of how humans use limited resources (land, labor, capital and enterprise) to manufacture goods and services and satisfy their unlimited needs and distribute it among themselves. It is divided into two broad branches, microeconomics and macroeconomics.

Each branch has its own policies and regulations relating to different sectors such as agriculture, labor market and the government. Microeconomics is the study of the behavior of an individual, firm or household in the market while macroeconomics is the study of the economy as a whole- that is, the individuals, households and firms collectively.

What is Microeconomics?

Microeconomics was first introduced by the economist Adam Smith and is the study of the economy at a lower level, it is commonly termed the ‘bottom-up’ approach. This branch of economics focuses on how decisions made by people and organizations can affect the economy as a whole. As individuals, we make numerous decisions everyday from what clothes to wear to what food to eat. These decisions are made by the different agents in the economy and serve as the basis for microeconomists to study how they affect supply and demand and ultimately the economy as a whole.

Tools such as supply, demand, consumer behavior, spending and purchasing power of people are used by economists to build models that they base their learnings on, one such model is the supply and demand curve. By understanding the buying and spending habits of people, economists come up with various theories to understand relationships between different elements and how these small parts fit into the larger picture.

However, in the real world, things are different and cannot always be represented through a model. Hence some economists study subsets of microeconomics such as human behavior which is the actions taken by an individual when making a decision and the behavioral model which uses disciplines such as psychology and sociology to understand how people make decisions.

Since microeconomics is the study of the economy at a lower level, many people use it as a starting point for learning economics. The theories used in microeconomics are then used to study the economy at a larger scale- also known as macroeconomics.

Also read: What is Top Down and Bottom Up approach in stock investing?

What is Macroeconomics?

While microeconomics is a bottom-up approach, macroeconomics is considered a top-down approach as it is the study of the economy on a larger scale. Prior to 1929, many economists only studied microeconomics (people’s individual decisions) however after the crash of 1929 (aka the great depression), many economists were unable to explain its cause. They found that there were forces in the economy, which based on people’s decisions, could have a positive and negative impact. In addition to looking at individual decisions, it was also important to look at the big picture.

Macroeconomics is the study of larger issues affecting the economy such as economic growth, unemployment, trade, inflation, recessions and how decisions made by the government can affect the economy. For example, the Central Bank creates their interest rate policies based on the macroeconomic conditions in the country and around the world.

John Maynard Keynes is considered the founding father of Macroeconomics and his understanding of the subject was largely influenced by the Great Depression. During the 1930s Keynes wrote an essay titled The General Theory of Employment, Interest and Money where he outlined the broad principles of Macroeconomics that led to the development of Keynesian economics. Keynesian economics are macroeconomic theories about how during a recession, in the short run, the output is influenced by the aggregate demand in the economy. Milton Freidman another pioneer of macroeconomics used monetary policy to explain the reasons for the depression.

Micro vs Macro Economics -The key differences

micro vs macro economics big picture-min

As mentioned earlier, microeconomics is the study of individual and household decisions and the issues they face. This could be analyzing the demand for a certain good or service and how this affects the production levels of a company. It could also be the study of effects of certain regulations on a business.

While macroeconomics is the study of the economy as a whole. This involves looking at the gross domestic product (GDP) of the economy, the unemployment rates and the effects of inflation, deflation and monetary policy. For example, they may look at how an increase in taxes can affect the economy using the GDP, national income and inflation rate as a metric rather than individual factors.

Microeconomics is useful for determining the prices of goods and services in the economy along with the costs of the factors of production (land, labor, capital) while macroeconomics helps maintain price stability and creates policy to resolve problems dealing with unemployment, inflation and deflation.

However, both micro and macroeconomics come with their limitations. For example, the study of microeconomics assumes that there is full employment in the economy. This can lead to unrealistic theories as this is never true. In macroeconomics, there is a fallacy of composition where economists assume that what is true for an individual is true for the economy as a whole. However, in the real world, the aggregate factors may not be true for individuals too.

Micro and macroeconomics are interlinked

By definition, microeconomics and macroeconomics cover completely different aspects of the economy and while this is true, the two fields are similar and also interdependent on each other.

When dealing with inflation, many people think of it as a macroeconomic theory as it deals with interest rate and monetary policy. However, inflation is an important part of microeconomics because as inflation raises the prices of goods and services, it reduces the purchasing power that affects many individuals and businesses in the economy. Like inflation, government reforms such as minimum wage and tax rates have large implications in microeconomics.

Another similarity in microeconomics is the distribution of the limited resources. Microeconomics studies how the resources are distributed among individuals while macroeconomics studies how they are distributed among groups that consist of individuals.

Also read: How Does The Stock Market Affect The Economy?

Conclusion:

Although micro and macroeconomics affect different levels of the economy and cover different policies, they are in fact two sides of the same coin and often overlap each other. The most important distinction is their approach to the economy. Microeconomics is ‘bottom-up’ and macroeconomics is ‘top-down.’

Petrol, Diesel price history in India

A brief study of Petrol & Diesel price history in India

Crude Oil. You definitely have heard of this word, right? Crude oil is a naturally occurring unrefined petroleum product. It consists of organic materials and hydrocarbons. When the crude oil is refined, first it is heated until it starts boiling. Then, the boiling liquid is separated into various liquids and gases. These liquids are further utilized in making petrol, diesel, paraffin, and other petroleum products.

The products and by-products of crude oil are used in direct or indirect consumption by the end users. They are also used in manufacturing several commodities by a wide range of industries. Crude oil is also traded in the commodity market like gold, silver, etc. This results in the global price of crude oil to fluctuate. In India, only one-fifth of the crude oil requirements are met from domestic production. Therefore, we are heavily dependent on the US, African, and Middle East countries to support our nation’s demand for petrol and diesel.

How the prices of diesel and petrol are determined?

The Oil Marketing Companies or OMCs take crude oil to the refinery houses to generate petrol, diesel, kerosene and other products. After that, they dispose those products to the dealers of the same. In India, 90% of the share of oil marketing is owned by Indian oil corporation Ltd (IOCL), Bharat petroleum corporation ltd (BPCL) and Hindustan petroleum corporation ltd (HPCL).

Here is the exact process of how the price determination of diesel and petrol takes place in India.

First, an OMC imports crude oil from an oil producing nation like UAE. The cost and freight are the initial costs incurred on the same. Import charges (plus insurance charges, losses due to transportation and port fees) are further added to the same. Next, the Government of India adds Customs Duty on such crude oil, after which they are carried to the refinery houses.

The refineries charge Refinery Transfer Charge for their work. After that, such refined oil is sold to the dealers by the OMC at Depot Price after incurring inland freight on the same. So the total desired price is the result of all the Cost & Freight charges, Import charges, Refinery Transfer Price, Inland Freight, OMC’s Marketing costs, and Profit margin.

In addition, the Central Government of India adds Excise Duty on the Depot Price and the State Governments add State VAT on the same. Further, the dealers also add their commission which is calculated on the basis of per liter. So, after adding all the costs and taxes, we get the Retail Price that a consumer pays for buying a liter of petrol or diesel.

If you compare the prices of diesel and petrol in the South Asian nations, you would find that the prices in India are always the highest. This is because our Government regulates the prices by imposing taxes. Ironically, when you would see the prices of the crude oil dropping, Indian government increases the Excise Duty and State VAT to not let the retail prices of diesel and petrol fall. On the other hand, when the prices of crude oil rises, here the Government doesn’t reduce the said taxes so that the prices of the fuels in the nation don’t undergo fluctuations.

Besides, there is no doubt in stating that the prices of diesel and petrol would vary from one state to another in India due to differences in commission pattern of OMCs and transportation charges.

Petrol & Diesel price history in India

Now, let us have a look at the price history of diesel and petrol in India over the last few years. Given below is a table which shows the petrol prices per liter in the four metropolitan cities in India. 

Petrol Price history in India:

Date Chennai Mumbai Kolkata Delhi
05-11-2018 81.61 84.06 80.47 78.56
29-10-2018 82.86 85.24 81.63 79.75
29-09-2018 86.7 90.75 85.21 83.4
29-08-2018 81.22 85.6 81.11 78.18
29-07-2018 79.11 83.61 79.05 76.16
29-06-2018 78.4 83.06 78.23 75.55

As you can see from the above table, generally the petrol prices have been on the higher side in Mumbai. However, Delhi witnessed the most reasonable petrol prices in the last few months of 2018. 

Further, here is the historical petrol price movement in the big four metropolitan cities in India.

Date Chennai Mumbai Kolkata Delhi
29-05-2018 81.43 86.24 81.06 78.43
16-05-2017 68.26 76.55 68.21 65.32
17-05-2016 62.47 66.12 66.44 63.02
16-05-2015 69.45 74.12 73.76 66.29
07-06-2014 74.71 80.11 79.36 71.51
23-05-2013 65.9 71.13 70.35 63.09
24-05-2012 77.53 78.57 77.88 73.18
15-05-2011 67.22 68.33 67.71 63.37
01-04-2010 52.13 52.2 51.67 47.93
27-02-2010 51.59 51.68 51.15 47.43
02-07-2009 48.58 48.76 48.25 44.72
29-01-2009 44.24 44.55 44.05 40.62
24-05-2008 49.64 50.54 48.98 45.56
16-05-2007 47.44 48.38 46.86 42.85
10-06-2006 51.83 53.5 51.07 47.51
05-06-2006 51.83 53.5 51.07 47.51
20-06-2005 44.26 45.93 43.79 40.49
16-04-2003 35.48 37.25 34 32.49

When you look at the longer time period shown by the above table, the picture looks similar as well. Anyways, one comparable takeaway is that, in every metropolitan city, the petrol price has consistently gone up at the same rate in the last one and half decades. (Note: You can find the latest prices of petrol in India here).

crude oil price

Diesel Price history in India:

Now, let us talk about the historical prices of diesel per liter in India. Here is a short-term view of diesel prices in the four Indian metropolitan cities:

Date Chennai Mumbai Kolkata Delhi
05-11-2018 77.34 76.67 75.02 73.16
29-10-2018 78.08 77.4 75.7 73.85
29-09-2018 78.91 79.23 76.48 74.63
29-08-2018 73.69 74.05 72.6 69.75
29-07-2018 71.41 71.79 70.37 67.62
29-06-2018 71.12 71.49 69.93 67.38

The table given above shows that in the last few months of 2018, the diesel prices first have gone up and then they showed consolidation at the beginning of November.

Next, here is the long-term diesel price history in India. If you look at the table shared below, it is easily understood that the diesel prices in the said four Indian cities have actually witnessed consistently rising prices in the last fifteen years.

Date Chennai Mumbai Kolkata Delhi
29-05-2018 73.18 73.79 71.86 69.31
16-05-2017 58.07 60.47 57.23 54.9
17-05-2016 53.09 56.81 54.1 51.67
16-05-2015 55.74 59.86 56.85 52.28
07-06-2014 61.12 65.84 61.97 57.28
23-05-2013 52.92 57.17 53.97 49.69
24-05-2012 43.95 45.28 43.74 40.91
15-05-2011 43.8 45.84 43.57 41.12
01-04-2010 38.05 39.88 37.99 38.1
27-02-2010 37.78 39.6 37.73 35.47
02-07-2009 34.98 36.7 35.03 32.87
29-01-2009 32.82 34.45 33.21 30.86
24-05-2008 34.44 36.12 33.96 31.8
16-05-2007 33.3 34.94 32.87 30.25
10-06-2006 35.51 39.96 34.96 32.47
05-06-2006 35.95 39.96 34.96 32.47
20-06-2005 31.51 35.2 30.8 28.45
16-04-2003 23.55 26.7 23.51 21.12

Quick Note: You can find the latest price of diesel in India here.

diesel price

Difference between prices of Petrol & Diesel in India:

Below is a table shared for your reference which shows the price gap in diesel and petrol in the Indian metro cities during the mid of the year 2016.

City Diesel Price /Liter Petrol Price /Liter Price Gap
Chennai Rs 55.82 Rs 62 Rs 6.18 / Litre
Mumbai Rs 59.6 Rs 67.11 Rs 7.51 / Litre
Kolkata Rs 56.48 Rs 66.03 Rs 9.55 / Litre
New Delhi Rs 54.28 Rs 62.51 Rs 8.23 / Litre

Further, here is another table that would give you an idea of the price gap with regard to diesel and petrol during as of November 2018.

Date Diesel Price /Liter Petrol Price /Liter Price Gap
Chennai Rs 74.99 Rs 78.88 Rs 3.89 / Litre
Mumbai Rs 74.34 Rs 81.50 Rs 7.16 / Litre
Kolkata Rs 72.83 Rs 77.93 Rs 5.1 / Litre
New Delhi Rs 70.97 Rs 75.97 Rs 5 / Litre

From the above tables, it can be clearly noticed how substantially the price gap has been narrowed down within the period of around two years.

Consequences of petrol and diesel price hike

As you might have observed from the above tables, the fuel price in India has undergone a significant hike over the last multiple years. So, what does it imply? Does it mean that the overall cost of living in India has gone up too? If you look back in 2018, the rate of consumer inflation in India was around 4.75%

When the price of fuel increases, in general, it narrows down the gap between disposable income and expenditure of the consumers. It means that the consumers will try to reduce the consumption of luxury commodities like automobiles and electronic equipment in order to manage their necessities comfortably.

Hike in fuel price also has a direct adverse effect on the revenues of a few industries like tyres and fertilizers as the retail prices of their outputs shoot upwards. However, if you look at the financials of oil producing companies in India, there is no doubt in saying that they do enjoy a gala time during such period.

Further, you might think that only those companies which produce crude oil based products suffer during the fuel price bull run. But, the fact is that most of the companies in our nation (belonging to diverse industries) suffer as a result of the price hike. Even if you consider the FMCG industry, the cost of its products goes up considerably as a result of the upward movement in the prices of diesel and petrol. This happens because transportation costs go up significantly.

Now, what kind of impact can you expect to see in financial markets during fuel price hike? Well, when the price of diesel and petrol goes high, not only people will try to cut down their unnecessary expenses but they may even reduce financial investing. In order to finance their necessities, people would refrain from putting their money in the financial markets.

Therefore, will the banks have adequate funds to advance the businesses? Not really! Can the corporate organizations listed in NSE and BSE comfortably raise capital through IPO and FPO? Certainly not! Will the Asset Management Companies of Mutual Funds have an adequate corpus to pour into the market? No, my friend, they won’t have!

Also read: Rupee Depreciation: Is it a cause of concern?

Final thoughts

The hike in the global price of crude oil depends primarily on the demand-supply theory that we study in Economics. However, it also depends on other factors like the trade war, geopolitical tensions, and willingness of oil-producing countries to charge a higher price. As we had already seen earlier that hike in crude oil price results in inflation. So, to fight against the same, the Central Government charges more taxes and duties on diverse stuff. For a similar reason, the RBI also instructs the commercial banks to increase their interest rates on loans so as to squeeze money supply in the Indian economy.

Further, the price of petrol and diesel can be controlled if we lay emphasis on a few points. Firstly, price controlling mechanism has to be adopted either partially or fully. The half of Retail Prices of fuels in India consists of taxes and duties. The government (both central and state) does need to look into the matter. It would also be great if the OMCs can try to witness some of the price burdens that the ultimate consumers have to bear in our nation.

Finally, the consumption of petrol and diesel in India in terms of US Dollar is even higher than the GDPs of many small nations across the globe. And that’s why the government and the people need to consider petrol and diesel price hike in India seriously.

How Does The Government Control Inflation cover

How Does The Government Control Inflation?

We cannot minimize the explosive effects of inflation. High inflation has the ability to topple governments, ruin nations and reduce economic growth. It discourages savings and reduces the overall productivity in the country. In its creepiest form, inflation can reduce the purchasing power of people, this means the pensions and savings of people can now buy less than it did before.

In response to this, governments have many powerful tools they can use to control the rate of inflation in the economy. These policies have been discussed in detail in this article.

What is inflation?

Inflation can be described as a continuous increase in the general level of prices. In some cases, inflation can be used to encourage spending in the economy. However, this is not always the case as inflation can often get out of hand and the purchasing power of people drastically decreases. The government will then have to intervene to create balance in the economy.

Inflation can be measured using the Consumer Price Index (CPI). The bureau of labour statistics chooses close to 500,000 products from more than a 100 categories which are included into a ‘basket’. The prices of the goods are used to calculate the price index.

Effects of inflation

Inflation, depending on its severity, has the ability to disrupt economies. There is an uneven distribution of income that can affect many sectors in the economy. They are discussed as follows:  

— Effect on various economic groups- If there is low inflation in the economy, job seekers can benefit from this as increased demand will lead to a rise in employment. However, an unhealthy level of inflation can be disastrous for the economy as people pull their money out of financial institutions and their purchasing power reduces.

— Government spending- During inflation, the government, like individuals, have to pay more for wages and supplies. In order to raise more revenue the government can increase taxes but people will may have the ability to pay for them and some groups will be affected more than others.

— Savings and Investment- If inflation is on the rise, it is not a great time for savers as the decrease in the value of money reduces the value of savings. Many people move their investments to stocks and property during inflation. It is a favorable time for borrowers because the value of the money they owe reduces.

How Does The Government Control Inflation?

If the rate of inflation in the economy goes beyond a rate that is uncontrollable, the government has to intervene with policies to help stabilize the economy. Since inflation is the result of too much expenditure on the economy, the policies are created to restrict the growth of money. There are three ways the government can control the inflation- the monetary policy, the fiscal policy, and the exchange rate. They are discussed as follows.

— The Monetary Policy

Monetary policy is a tool used by the government to control the amount of money circulated in the economy. This includes paper money, coins and bank deposits held by businesses and individuals in the economy. Monetary policy uses interest rates to control the quantity of money in the economy.

— Open market operations

When there is high inflation in the economy, the amount of money created by financial institutions needs to be restricted. The Federal Reserve Bank lowers the supply of money by selling their large securities to the public, specifically to security dealers. The buyers pay for the securities by writing checks on the deposits they hold in the commercial banks. This is an effective way to control the supply of money as the deposits of the commercial banks at the Federal Reserve Bank are the legal reserve for the banks. With the sale of securities, the banks are forced to restrict their lending and security buying, therefore reducing the quantity of money in the economy.

— Increasing the reserve requirement

The reserve requirement refers to the amount of money that the commercial banks are required to have on deposit with the Federal Reserve Bank. A low reserve requirement means banks have more money to lend out which can increase the money supply. But when there is high inflation in the economy, the government increases the reserve requirement which restrains the growth of money and even reduces it.

— The rediscount rate

The rediscount rate is the rate of interest charged by the commercial banks. The commercial banks borrow from the Federal Reserve in exchange for a promissory note. In exchange, the Federal Bank increases the deposit of the bank. The rediscount rate controls the cost to banks for adding additional reserves. When inflation is high the bank increases the rediscount rate, which makes it more expensive for banks to buy reserves. This cost is usually translated to customers in the form of high interest rates on loans borrowed from commercial banks which ultimately reduces the supply of money in the economy. In order to control the supply of money in the economy with the monetary policy, the rediscount rate is used in conjunction with the reserve requirement and sale of securities.

— Fiscal policy

The Fiscal policy uses government spending and taxation to control the supply of money in the economy. The policy was designed by John Maynard Keynes who studied the relationship between aggregate spending and the amount of economic activity in society. He also claimed that government spending can be used to control aggregate demand.

— The decrease in government spending

Sending by the government constitutes a large part of the circular flow of income in the economy. During periods of high inflation, the government can reduce the spending to decrease the amount of money in circulation. In many instances, high government spending is the root cause of inflation. However, it is often hard for governments to differentiate between essential and non-essential expenditure so, the spending policy should be augmented by taxation.

— Increase in taxes

An increase in the level of taxes reduces the amount of money that people have to spend on good and services. The effect of the tax can vary with the kind of tax imposed, but any increase in tax would reduce spending in the economy. An increase in tax combined with a decrease in government spending can have a double-barrelled effect on the supply of money in the economy.

— Increase in savings

Another theory derived by Keynes was his belief in compulsory savings or deferred payments. In order to achieve this, the government should introduce public loans with a high rate of interest, attractive saving schemes and provident or pension funds. These measures lock people’s income into savings accounts for an extended period of time and are an effective way to control inflation.

Also read:

Conclusion

Inflation can have a major impact on the economy and can affect the government, investments and the purchasing power of people. A high rate of inflation for an extended period of time can lead an economy into a recession. Fortunately, the government has the ability to use the monetary and fiscal policies to help control the supply of money in the economy. When used in the conjunction, the policies can help achieve a lower rate of inflation and a more stabilized and balanced economy.

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