Green bonds

Greenvissage explains, Why are Green bonds increasingly becoming popular?

Issuing green bonds can provide companies and governments with access to capital while simultaneously promoting environmental initiatives. In essence, a green bond is a financial instrument that allows a company or government to borrow money from investors at a lower interest rate than traditional bonds, with the condition that the funds will be used for environmentally friendly projects. The difference in interest rates between traditional bonds and green bonds is known as the Green bond premium. Recently, the Indian government sold its first-ever green bonds, which were a resounding success. The government sold one billion dollars worth of bonds with an interest rate of 7.29%, which was 0.06% lower than the interest rate for a similar duration traditional bond. The success of this bond sale will enable the Indian government to invest in solar projects and wind turbines, among other environmentally friendly initiatives.

While the Indian government’s green bond sale was a triumph, it is noteworthy that the best place to issue green bonds is in the US or Europe, where there are numerous rich funds with mandates to invest solely in green initiatives or allocate a percentage of their funds to environmental projects. There is so much demand in these regions to invest in green initiatives that some people believe that green has become a marketing term exploited by companies to access cheap funding. Foreign investors and green bonds are like chocolates and Charlie – foreign investors enjoy purchasing green bonds, and issuers like selling them to foreign investors. However, selling green bonds to Indian investors is not as popular. Still, the Reserve Bank of India recently conducted the government’s first-ever sale of green bonds, with state-owned banks and insurance companies being the primary purchasers of the bonds. Although foreign investors purchased approximately 10% of the bonds, most of the bonds were bought by state-owned banks and insurance companies. The government’s goal was to sell green bonds to foreign investors, but foreign investors preferred to purchase bonds in dollars rather than rupees.

The government’s decision to sell green bonds to state-owned banks is understandable as state-owned banks should support the government. By buying green bonds, state-owned banks can show their support for the government’s environmental initiatives. The Indore municipal government issued green bonds this month, with a commitment to raise five times more than the INR 122 crores (USD 15 million) they initially intended to raise. Green bonds are critical to ensuring that funds raised from investors are used for environmentally friendly projects. For context, the Indore government’s green bonds have an interest rate of approximately 8.25%, which is relatively high for a government bond.

While foreign investors prefer to purchase green bonds in dollars, the Reserve Bank of India recently conducted the government’s first-ever sale of green bonds, with most of the bonds being purchased by state-owned banks and insurance companies. The Indore municipal government recently issued green bonds and received a commitment to raise five times more than their initial goal. Green bonds are essential to ensuring that funds raised are used for environmentally friendly projects, and they provide governments and companies with access to capital at a lower interest rate.

Greenvissage explains, How does Inflation affect the stock markets?

Inflation refers to the increase in the prices of goods and services during a given period. For instance, if the price of onion is Rs. 30/kg this year and increases to Rs. 36/kg the next year, the inflation rate for onion will be 20%. In India, the government releases two types of inflation data, namely the Wholesale Price Index (WPI) and the Consumer Price Index (CPI). The Wholesale Price Index is calculated based on the wholesale prices of three major groups, namely Primary Articles (such as cereals, paddy, and wheat), Fuel & Power (such as petrol and LPG), and Manufactured Products (such as textile, wearing apparel, and leather products). The weightage for each of these groups in the WPI index is 23%, 13%, and 65%, respectively. On the other hand, the Consumer Price Index measures retail inflation of commonly used goods and services and is divided into eight categories, namely Education, Communication, Transportation, Recreation, Clothes, Foods and Beverages, Housing, and Medical Care. CPI measures inflation at the final consumer level, while WPI measures it at the producer level.

The Reserve Bank of India (RBI) uses CPI as an inflation indicator since 2014, replacing WPI, making it the most important data to determine interest rates. The RBI typically targets to keep inflation under check and, therefore, gives a lot of importance to CPI data. The RBI’s tolerance limit for CPI is 6%, which means that if inflation remains above 6%, it needs to take strong measures to keep it below 6%. If inflation remains above 6% for three consecutive quarters, RBI needs to send a report to the central government explaining the reasons for the ‘Failure to maintain inflation target.’ High inflation means more money supply chasing fewer goods and services, leading to price increases. Therefore, RBI is compelled to increase interest rates, leading to people saving more in bank deposits, reducing the money supply, and ultimately reducing the prices of goods and services. If people save more through fixed deposits, equity markets tend to consolidate or underperform since equity is considered a risky asset, and people tend to reduce their allocation towards the equity market. Another reason for equity underperforming is that when interest rates are higher, companies tend to pay higher interest costs for raising capital, which eats into their profit margins, thereby reducing their overall profitability and stock prices.

When comparing India’s CPI with that of Europe and the US, it is essential to consider the Repo rate, which is the rate at which RBI loans money to commercial banks. The Repo rate is used by the RBI to manage inflation, meaning that if inflation is high, the RBI will hike the Repo rate. Ideally, the gap between CPI and Repo rate should be 0. In India, the CPI is 6.50%, and the Repo rate is also at 6.50%. In the US, the CPI is at 6.4%, and the fed fund rate is at 4.75%. This implies that inflation is higher than the Fed fund rate, and therefore, the Fed has to increase interest rates to the level of CPI to bring inflation under control. In Europe, the condition is worse, with Euro Area inflation at 8.6%, and the Repo rate is 3.25%. Thus, compared to the US and Europe, RBI has done a commendable job in keeping the inflation rate and Repo rate at the same levels, thereby keeping inflation in check.

Greenvissage explains, Why did Tata launch Zudio when it already owns Westside?

The Tata Group is one of the most well-known conglomerates in India, and among its various brands, Zudio and Westside stand out as two distinct clothing brands. However, it may come as a surprise to many that Zudio and Westside are, in fact, the same company. The question then arises, why would a company maintain two separate brands in the same industry? The reason behind this decision lies in the concept of product positioning. The space these brands occupy in the minds of consumers is more important to the company than the space they would save by sharing stores. Loss of brand recall from consumers would cost them more than the rent they pay for separate stores for both brands. Westside is positioned for the mid to high-segment audience on the slightly mature side. It is known for its superior quality and consciously making style simple for every moment. People who love Westside go there for their superior quality. On the other hand, Zudio is positioned for the mid to low-segment audience on the slightly younger side. It is for people who love fashion trends at great pocket-friendly rates. If Westside were to start selling Zudio kind of clothes and try to trade them off for a cheap price, their main customers won’t buy them. Even though the Indian market is extremely price sensitive, including the mid to high-segment, they still won’t buy it. This is because people don’t care about how much a shirt costs, they care about its looks and feel. And since Westside customers are shopping from them not for price but for quality, they will lose trust in the brand. Losing customer trust and loyalty is costlier than paying rent for separate Westside and Zudio stores.

Another reason for this decision is that Westside failed in tier 2 cities, which destroyed the company’s plans for tier 3 and 4. Consumers in these areas want great prices, and premium clothing does not interest them. Also, Westside didn’t spend much on brand awareness in these regions, probably because they couldn’t establish a good enough proof of concept there. Their product range was also not correctly positioned for tier 2-3-4 cities because they have subtle designs. Tier 2-3-4 is becoming trend-conscious and needs more trendy designs, which Westside could not deliver. They couldn’t even pivot Westside to cater to the local needs in tier 2-3-4 because that would again ruin its brand perception. Westside had plans for expansion pan-India in many more cities, but since they were not able to reach profitability in tier 2, they understood that they could expand to 2 dozen cities at max. And hence, Zudio was born. With Zudio, they want to have the first mover’s advantage in the tier 2-3-4 and the newly trend-conscious Bharat. Since tier 2-3-4 is dominated by the unorganized sector, Zudio was able to easily create its niche in the market with a stronger brand than theirs. With better trends to offer than what was already available in the market and matching their prices, it has the potential to dominate that market.

Thus, the company wants to have a clear distinction between the two in the minds of consumers to avoid confusion and loss of brand recall. Westside failed to capture the tier 2 market due to its pricing and subtle designs, which led to the creation of Zudio, catering to the newly trend-conscious Bharat. With Zudio, the company hopes to dominate tier 2.

Greenvissage explains, How did Patanjali become a leading FMCG brand in India?

In 2016, Patanjali seemed poised to become the dominant player in the Indian market, with many believing they would surpass established brands like Unilever and Dabur. However, in 2017, Patanjali experienced a shocking setback and almost lost its credibility. This is the story of Patanjali’s rise, fall, and resurgence. At one point, it appeared that Patanjali was unstoppable due to the powerful personal brand of Baba Ramdev, a high level of trust among consumers, and widespread distribution. However, competitors like HUL and Dabur were not overly concerned, realizing that Patanjali was making a rookie mistake. While some believe that Patanjali’s shift from Ayurveda to FMCG was the biggest reason for its failure, it was, in fact, the combination of Ayurveda and FMCG that was its unique selling proposition (USP).

Back in 2016, Patanjali was seen as a major threat to established brands like Unilever and Dabur, and many thought it would dominate the Indian market. However, the company failed in 2017 and almost lost its credibility. Patanjali had initially succeeded in combining Ayurveda with FMCG, which appealed to consumers who wanted natural products. However, they made the mistake of focusing too much on Swadeshi recall (patriotism) instead of maintaining the quality of their products. This led to the over-stretching of the brand, and people became sceptical about the company’s intentions. Patanjali’s aggressive marketing, combined with the mismanagement of quality, led to brand fatigue. However, Patanjali has since improved its product quality and concentrated on producing truly natural products. Despite competition from other natural product brands, Patanjali’s status as the only true Indian champion in the segment gives it an advantage over major FMCG brands. The real competition for Patanjali now comes from within the company.

Several Ayurveda firms and startups are gradually acquiring a larger portion of the market, and some may emerge as dominant players. Patanjali is putting in a lot of effort to regain consumer trust in this sector. However, they are unlikely to stop introducing new products. Despite this, their strategy of expanding into every segment has proven unsuccessful in the past. It is strange for an Ayurveda and FMCG firm to sell both saris and sports t-shirts, but Patanjali seems to be fixated on this approach.

Greenvissage explains, What should you consider while buying term insurance?

Have you ever wondered if your term insurance policy is providing you with adequate protection or if it is worth the money you are paying for it? Are you sure of what riders to add to your policy? If you are not in the mood to read a lengthy article but want a consolidated checklist with an explanation, you have reached the right place.

  1. Did you select the appropriate Sum Assured? It is important to choose a cover that is not too low and leaves you under-protected, or too high and wastes your hard-earned money.
  2. Did you choose the appropriate duration for your policy? The term should not extend past your retirement age, but it can be shorter if your liquid and near-liquid assets can cover your existing liabilities and the future expenses of your dependents.
  3. Did you select a policy that allows you to increase the Sum Assured? The ability to increase coverage is an excellent feature that allows you to raise the coverage at various life events such as marriage, childbirth, and an increase in income.
  4. Did you choose a policy that allows you to decrease the additional Sum Assured? Reducing the increased sum assured helps align the coverage with your protection needs and increases the value of your money, as the requirement for coverage generally decreases over time.
  5. Did you select a policy with maturity benefits like the Return of Premium (RoP) at the end of the policy term? Term insurance policies with maturity benefits are usually more expensive than regular policies and may not be the best use of your hard-earned money.
  6. Accidental Death Benefit Rider: This rider increases the coverage but is of little consequence if your base sum assured is appropriate. Opting for it may not be the best use of your money.
  7. Critical Illness Rider: This covers you for expenses and loss of income arising due to critical illnesses. Watch out for the number and type of diseases covered, as well as the exclusions around pre-existing diseases.
  8. Accidental Disability Rider: This is a crucial cover, but most insurers only cover permanent and total disability. Comprehensive standalone insurance is a better cover for protection.
  9. Waiver of Premiums Rider on Critical Illness: This is helpful and ensures that the term insurance coverage continues even when you are unable to pay the premiums due to expenses towards the treatment of critical illness.
  10. Waiver of Premiums Rider on Disability: This is helpful and ensures that the term insurance coverage continues even in the case of permanent disability, which could imply a loss of future income and increased expenses.
  11. Fill out the proposal form yourself with diligence, identifying all material and relevant information. This is the single most crucial factor that will ensure that claims will be settled. Even if it means going through medical tests or increasing the premium, do it.
  12. Identify an insurer with a high claims settlement ratio, smoother claim process, and quick turnaround time for claims settlement. A higher claims settlement ratio and a smoother process will ensure that your nominees will have to go through less hassle in the event of untimely death.