In today’s Finshots brief, we talk about
- India’s soaring Current Account Surplus
- Tanishq’s golden opportunity
- Why more people are opting for American MBA programs this year
India’s Current Account Surplus
In the April-June quarter, India’s Current Account Surplus- that is, the country’s total exports minus imports - has risen to a whopping $19.8 billion. This happens to be the highest surplus we’ve ever recorded.
So is this good news? Does it mean our economy is getting back on track?
Well, not quite. You see, the current account records the transactions that a country has with the rest of the world. Trade in goods and services forms a big chunk of these transactions, but it also includes things like the earnings that Indian investors have had from abroad, remittances made by those living outside the country, foreign aid etc. And as such, most people instinctively regard deficits in the current account as problematic, while surpluses are generally considered healthy.
The logic here is simple- the more you export, the more you earn. The more you import, the more money you have to pay to outsiders. And to some extent, this is accurate. Because when you see a lot of demand for foreign goods (more imports), it indicates that your domestic economy isn’t competitive enough. And if you keep exchanging large amounts of your domestic currency to buy foreign goods and services, it will lose its value. On the other hand, a surplus may indicate a higher demand for domestic goods, which in turn will give a boost to local manufacturing and inevitably lead to more employment in the country.
Also, having a surplus by exporting more can help the country earn valuable foreign currency and build on its reserves, which are important for maintaining financial stability. For India, it’s all rosy on this front- the Reserve Bank of India forex reserves now stand at $545 billion. And according to a report by IDFC First Bank, these reserves are expected to go to $570-575 billion by the end of the year.
But a current account surplus that comes at a time when the economy is contracting is not a very good sign- it indicates a sharp fall in domestic consumption. And that’s exactly what’s happening here.
According to the RBI’s release, "The surplus in the current account in Q1 of 2020-21 was on account of a sharp contraction in the trade deficit to $10 billion due to steeper decline in merchandise imports relative to exports on a year-on-year basis." In other words, the surplus happened because Indians didn’t demand enough goods from abroad.
At the same time, net portfolio and foreign direct investment flows fell precipitously, and remittances from Indians employed overseas also declined- though, not as much as markets expected. But in any case, the surplus is definitely not a good sign.
Tanishq’s time to shine
Despite gold prices reaching record highs during the pandemic, jewellers across India have been suffering. As consumers tightened their purse strings, the branded jewellery retail market saw a de-growth of over 70% during the lockdown. But now, the upcoming festive season offers a glimmer of hope.
Traditionally, Indians consider buying and gifting gold to be extremely auspicious. And so, festivals like Dussehra and Diwali are expected to bring good tidings for the yellow metal. In anticipation of this, investors are betting big on Titan - leading to an almost 27% jump in the company’s share price for the July-September quarter.
Though Titan is usually associated with watches, jewellery sold through its Tanishq brand is the company’s biggest moneymaker. And as the price of gold rises, the jeweller’s profit margin is set to widen. Besides, Tanishq has a veritable advantage over small and unorganized jewellers who are quickly running out of funds i.e. Tanishq can sell online.
Over the past few months, the company has made huge strides in going digital. They now offer customers the option of buying jewellery over video call- people can select the things they like, have a sales assistant at the store try it out and show it to them, and then either close the deal online or make an appointment to visit the store. This scheme is becoming increasingly popular with safety-conscious buyers.
All in all, the next couple of months seem like a golden opportunity for Titan!
MBA programmes surge in popularity
A depressed job market and high tuition costs have led to a steep decline in application to the US’ MBA programs over the past 5 years. And when the coronavirus shuttered international borders and took learning online, schools feared admissions would fall further.
So they did something they’ve never done before - they extended their admissions deadlines for this spring. Some even made standardized testing requirements optional. And what do you know? It worked! Elite schools like the University of Pennsylvania’s Wharton School, Columbia Business School and MIT’s Sloan School of Management are reporting double-digit percentage application upticks for their fall 2020 classes.
You see, people generally opt for business degrees and graduate programs to stay competitive when the job market is bad. Now, they had a chance to apply to their dream program and join it within just a few weeks. And looks like a lot of them took the opportunity!
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