SUNDAY WEEKLY ISSUE #20 Hello EveryFinions,
When I spoke to students at Narsee Monjee College of Commerce & Economics, one of the interesting questions they raised was if Bitcoin can end up replacing fiat money. My answer to that question was ‘No’. And there are 2 reasons why – 1) Any medium of exchange should exhibit some level of stability in its value. Bitcoin evidently does not. 2) Governments and central banks rely on controlling money supply to enable taxation and implement policy measures. And this wouldn’t be possible with Bitcoin.
I guess the more prudent question is can Bitcoin replace gold as an alternate asset class? Now this I cannot rule out. But one of the key issues that needs solving is developing a valuation model that can answer one simple question – How much is a Bitcoin actually worth? Is it $50 or $50,000? What is a fair price that we should pay for it? Till that question is answered, its price will continue to witness wild swings.
IN TODAY'S NEWSLETTER
MARKET UPDATE (WEEK ON WEEK CHANGE) SENSEX 51,544 1.6% NIFTY500 12,508 1.9% Brent Crude 62.43 5.2% Gold (per gram) 4,739 0.3% NEWS IN BRIEF
IN LESS THAN 200 HUNDRED WORDS Inflation and IIP data review The ministry of statistics & programme implementation (MOSPI) released inflation figures for the month of January 2021 this week. And lo and behold, they were much lower than the numbers we saw in previous months. Consumer food price index came grew by just 1.9% year on year. General price index increased by about 4% which is well within RBI’s inflation tolerance levels. Vegetables witnessed significant price correction in January compared to the year ago period. They were one of the key culprits driving up food prices in the second half of last year.
RETAIL INFLATION - JAN 2021 ![]() The ministry also released IIP (index of industrial production data this week) for the month of December 2020. The data agonisingly still says that industrial production declined in the 9-month period ended from April to December 2020 compared to the same period a year ago. December 2020 figures however were marginally up by 1% compared to December 2019 showing hopeful signs that industries are just about starting to produce as much or more compared to pre-pandemic time period. Paper, paper products, textile, furniture and print/recording media witnessed steep declines while computers and electronic gadgets witnessed extremely brisk production growth.
INDEX OF INDUSTRIAL PRODUCTION - DEC 2020 ![]() All said and done, fuel prices are starting to go up significantly in the country. Mumbai reported petrol prices of Rs.95 per litre, the highest ever recorded. If this trend continues, safe to say, we will have to shed tears BEFORE buying onions again. QUIZ This is the Taj Mahal. I get a feeling you knew that already? 😉 Construction of the Taj Mahal was completed in the year 1653. How much did it cost the Mughal emperor Shah Jahan to build it in today’s equivalent price? COVER STORY How much would you pay? Pricing is a whole branch of study in marketing. Take for instance a company like Hindustan Unilever Ltd. Say they are coming out with a new thin film product which makes your mirrors fingerprint safe. Instead of having to clean the mirror every now and then to get rid of fingerprints, this new thin film when applied to your mirror once will make it totally fingerprint proof. You will never have to clean your mirrors ever again. How much would you pay for it? How much should the company charge you for it? ![]() How much would you pay? - New Fingerprint safe think film for mirrors (Let's call it FINGERSAFE)
There are multiple approaches to pricing consumer goods. The first one is the classic, standard, age-old, most popular technique called ‘cost plus pricing’! As the name suggests, HUL would look into how much it costs to manufacture a single unit of Fingersafe (say Rs.10). They’d then add a % mark-up to it (say 30%) and determine the selling price (Rs.13). Of course, by the time it goes from HUL to the national distributor, down to the regional distributor and finally to the retailer, it might end up costing something like Rs.25. But you get the idea.
A second and relevant approach is to look at what the substitutes cost. Perhaps there is already an equivalent to Fingersafe in the market? And say it costs Rs.50. Then the pricing decision becomes one of should it be more or less than the competition? And by what exact %?
A third and more sophisticated approach is called ‘value-based pricing’. In this method, the folks at the marketing team try and figure out the true ‘value’ of a product like Fingersafe is to its customers. How do you figure that out? Well, think about it this way. Without Fingersafe, you’d have to buy some sort of mirror-cleaning solution at least once a year? Let’s say it costs Rs.5. And if the average lifetime of a mirror is 20 years, then over that time you’d have to spend Rs.100 (20 years * Rs.5/year) just to buy the cleaning solution. Add on to this, the cost of the time involved in cleaning the mirror every few months or so – that must be worth something too. They’ll do the math & perhaps decide that the actual value to the customers is Rs.150 and that’s what they will charge.
Did notice the huge range of pricing values (Rs.13 for cost plus, Rs.50 for substitutes-based and Rs.150 for value based)? Rs.150 is the maximum that you will probably be willing to pay and they will want all of it.
Now, how much would you pay for a 4-bedroom house in the centre of New Delhi? Or for a 40-seater Mexican restaurant? Hit the link to find out how to price them out. IN CASE YOU MISSED IT... Perceptions & Expectations ![]() Last week, the RBI released its perception & expectation survey results for the month of January 2021. It is a survey with a sample population of people to get their perception of the current economic/financial condition and their expectation for the future. The results are quite contrary to what the results would have been had the same survey been run with a sample population of stock market participants.
People’s perception of the current general economic situation in Jan-21 was much worse than the year ago period and has only slightly improved compared to May-20. ![]() Read more to find out what people said about income, employment & spending levels. ANSWER TO QUIZ $1 Billion That’s the amount of today’s equivalent money the Mughal emperor Shah Jahan spent to build the Taj Mahal. In 1653, the actual amount spent was roughly about Rs.32 Million rupees – pocket change! THOUGHT FOR THE DAY Which currency are you betting on? ![]() From the writer in me, to the reader in you ♥
Follow us on instagram here
© EveryFin.in, 2020, All rights reserved. You are receiving this e-mail because you subscribed to the weekly Sunday newsletter at everyfin.in. To unsubscribe,
Disclaimer : All content published on this newsletter or on any other post on everyfin.in are meant to be for information & education purposes only. It is not intended to be investment advice or a solicitation to buy or sell securities. Please do your own due diligence or consult with your financial advisor before making any investment decision. While the information published on everyfin.in and the newsletters are obtained from reliable sources, neither the author, the publisher nor any of their affiliates guarantee the accuracy or completeness of any such information.
|