What I read this week: How we’re becoming guinea pig shoppers; and setback in NPA fight

What happens when manufacturers and distributors go mining big data and calibrate prices based on demand matrix? We will soon become guinea pig shoppers. Hi there!

Think about it. Your next door consumer electronics store or car showroom gets enough insights into your internet searches and mail communication and manages to get a hang of what gadget or car you are planning to buy next, and they go for a surge pricing, the term you must have got used to from Uber and airlines. What happens when manufacturers and distributors go mining big data and calibrate prices based on demand matrix? We will soon become guinea pig shoppers.

India’s war on non-performing assets (NPAs) seems to have hit a major road bump, as the first judgement in such a case forced the banks to take a haircut. That does not sound very promising.

And then, there is more! Do read and share your thoughts. Happy weekend.

Insolvency and Bankruptcy Code: Not a great start
(Source: The first case under India’s new bankruptcy code has sent a shiver down lenders’ spines)

Many quarters have passed since the RBI passed the asset quality review, but we continue to see the plummeting asset quality of the Indian Banks, especially the Public Sector Banks. The alarming deterioration of the asset quality led to a slew of measures by the RBI and the Government of India. One of the reforms carried a lot of promise: The Insolvency and Bankruptcy Code (IBC).

One such company named Synergies-Dooray Automotive was taken to the bankruptcy code by its creditors. Recently, the NCLT passed the first judgement in the case under IBC. But the creditors could hardly cheer as they had to take a haircut of a whooping 94% of the total debt. In the worst case, the lenders were expected to take a haircut of 60% and 94% certainly seems to be shocking. Mind you, a haircut of 60% is also considered to be very high. About Rs.10 lakh crore in the banking system are stressed and the Synergies Dooray case just acts as a dampener to the huge recovery process to come ahead.

Hopefully, the above case is just an aberration and the cases coming up result in a much higher recovery. This would be very important for not only the capital hungry public sector banks but also Asset Reconstruction Companies (ARCs) which specialize in debt resolution. Else they would have to sit together and rethink on an alternative mechanism to recover the loans. It does not seem to be a smooth ride for the banks going ahead.

Surge pricing beyond Uber and airlines
(Source: Silicon Valley siphons our data like oil. But the deepest drilling has just begun)

We all know the extent surge prices can go upto. Best examples are that of the airlines and Uber off-lately. They can be beyond anyone’s logic and imagination. What if you are charged much more than the normal price on a cold drink on a hot day or you are charged higher for a lunch during peak hours?

Shocking it is, but it can soon be a reality. Some large superchains in UK are contemplating this.

Recently, Amazon announced the acquisition of Whole Foods. A company that has spent its whole life killing physical retailers now owns more than 460 stores in three countries. Amazon is fusing the online retail and the brick and mortar. It is going the Silicon Valley way of making money from monitoring everything we do. Silicon Valley observes our online activities and discover patterns that help determine what kind of person you are and what kind of things you buy. Amazon has also promoted Echo, a Siri like voice assistant called Alexa, which is also a very good listener. It would record everything it listens and transmit back to Amazon for analysis. Depending on the requirement and the time when most needed, surge prices can be levied on may other things beyond we currently believe.

Not long ago, somebody having access to huge oil reserves was considered to be very powerful on earth. But now, data is the new oil.

Challenging time for India’s gold industry
(Source: Photographer: Dhiraj Singh | The Battle for India’s $45 Billion Gold Industry Has Begun)

We have been hearing that the businesses are shifting from unorganized players to organized players since a few years. Perhaps, it has taken a lot more time than anticipated earlier. Post demonetization and GST, it seems to have accelerated. Some of the smaller players have started realizing this in the $45 billion gold industry in India.

It would not be surprising if one day we see that the local jeweler shop shut down his shop and instead a larger shop of an organized player has been setup. Many of the transactions done by the smaller family run jewelry shops were done in cash. Ever since the government has cracked the whip on unaccounted money, either through demonetization or GST, the going has got tough for these players. The bigger jewelers have deeper pockets, they have larger shops, better designs and better margins. It is very difficult for a smaller guy to compete. The government fixed GST on gold at 3 percent, replacing more than a dozen domestic levies. That will make it easier to track the flow of gold and harder to evade taxes, benefiting larger players. In 2015, organized national chains regional players accounted for about 30 percent of the market. That could rise to as much as 40 percent within four years, the World Gold Council said in a report.

The smaller players need to change their strategy to compete with the bigger chains and attract the younger generation to purchase gold. They ultimately have to adapt fast before their business gets disrupted.

Reliability of the most followed Risk models
(Source: World Out Of Whack: VAR Shocks! )

Risk models are quant models designed by some of the finest brains on the earth for a hedge fund, investment bank, trading desk or a prop house to assess their own risk. It helps assess how much money can anyone lose based on a set of dynamic variable factors. But ever wondered why do these models fail time and again. Remember the famous Swiss Currency shock in 2015 that led its currency skywards or the more recent event, Brexit?

Typically these models rely on the historic data; the longer the time frame, the better they become in capturing all the possible trends. But, if an event occurring has no past precedent and completely unexpected, then these models give way. Over the past few years, Central Bankers have taken policy decisions which no one else would have taken in the last eight centuries. One example is the negative interest rates which many countries in the world had resorted to.

A bond market can be influenced by inflation, geopolitical events and volatility. The unemployment rates in some of the developed markets have been at historical low and the inflation rates are trending higher too. The market does not seem to be pricing in the recent geopolitical risks which have emerged. Both inflation and geopolitical risks can impact the bond markets negatively. Also, volatility is one of the lowest seen in the last few years. With all this, the question arises that are VAR models going to get wrong again? Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.

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