Get the best out of your Budget process

It is late in the night, the lights in one section of the office are on (no prizes for guessing which function this is), the CFO and his team are busy with the year end closure, getting ready for audits and there is also a budget exercise looming ahead.Budgeting is an annual feature in every company’s itinerary and is quite an elaborate process if its done well. Most large organizations have robust processes and better quality talent to be able to pull this off with relative ease. The issue lies with mid corporate organizations who are neither too large to have the processes and people nor too small to ignore this, especially those who have an investor on board or where the accountability rests with the board. Having seen many such organizations, I have put together my thoughts on how can organizations get the best out of a budgeting exercise. This is in no way comprehensive nor do I claim to be a ‘guru’, this is purely experiential and has come from my exposure of having dealt with such companies

  1. Review and reset yourstandard costing:

Most of the mid-sized companies would have standard cost cards for theirproduct or service lines. Year-end is a good time to dig deep into the records to re-validate the actual costs against the standards and thereby review the need to reset the standards, in line with the real/actual costs. The company may focus on historical costs but the golden rule is ‘Lets not forget to consider inflationary trends’.

  1. Knowing your non-profitable business segments:

During the year we take decisions to enter new and opportunistic business segments. It is a good time to review these investment decisions particularly at the end of the financial year, when the performance reporting is assumed to be reasonably correct. Clearly knowing your profitable and non-profitable ventures, assists in taking ‘exit’ or ‘scale-up’ decisions.

  1. Identifying your key risks and your plan to keep them in check:

It’s a fact that life does not always go as per plan. As they say, there is an element of risk even in crossing the road. Not only is a careful consideration of the underlying risks important, but having a common understanding and agreement over action plans for risk mitigation and allocating finance towards the mitigation is also equally necessary.  Please give an example here

  1. Knowing your sensitivities and What-if’s scenario’s:

All planning exercises are futuristic and assumption driven. Most investors and boards would like to understand the impact of variability in your key assumptions on your revenues, profitability and cash flow. My tip would be to select a minimum of three assumptions, and develop two more scenarios around them (one optimistic and one pessimistic), in addition to the normal (realistic) scenarioto understand how the business model reacts to swings to external influencing factors. Higher the probability of positive swings, higher are the chances that your excel model might work in reality.

  1. Plan for cash shortfall-months:

Most companies are very good in preparing a very detailed P&L budget, but usually ignore the cash flow angle. In my view, cash planning is equally important (if not more important) than profitability planning, for mid-sized companies, knowing most scale-ups are on the back on either consistent operating cash flow-burn or large capex investments. Knowing your periods of cash-shortfalls is important to pre-arrange funding lines, so as to avoid situations of cash-outs.If

you are a seasonality-influenced business, importance of cash flow planning cannot be over-emphasized, so you can fill up your cash-chests to tide over temporary shortfalls.The oft used adage ‘Cash is King’ holds true in most businesses and in most situations still.

  1. Monitoring your own progress:

Whilstmost of us finance professionals invest days in creating a good quality plan, , most are guilty of not following through to monitor the progress of the plan. I see the first step towards this as cascading your approved plan with your operating managers. Whilst they might have been involved in its creation in the first place, it is important for them to know the growth path the company has finally taken and their contribution towards the same. The second step could be in identifying key metrics that would assist in progress monitoring. A tip here, is to turn-back into your plan and use some planning assumptions as key metrics. Include these metrics as part of the Operating managers yearly KPI’s and incentivise them for achievement. Third step is setting processes to report progress on key metrics identified. Reporting could be either automated or manual reporting with pre-agreed frequency. In case the company does not yet have IT systems, my recommendation would be to start the manual reporting and then once settled, bring in/ improvethe automation. Don’t wait for that perfect solution to get implemented, this will only delay things. Ensure that reporting happens religiously, so that the seriousness quotient is maintained. Don’t forget the old cliché “What doesn’t get measured doesn’t get done”.

The success or failure of a budgeting process is determined not just by the intent, a huge portion of the success depends on the organization culture, the enthusiasm of the operating and business teams and a smart CFO who is able to work with the existing systems, people and pull this off. This separates the wheat from the chaff, the good from the ‘Great’

 

 By Narayan Krishnaswamy, VP Delivery – MyCFO

 

Indian Rupee Posts Longest Run of Gains Since 2011 on Fed View

India’s rupee rose for a seventh day, the longest winning streak since June 2011, on speculation the U.S. Federal Reserve will refrain from tightening policy until the second half, reducing the risk of emerging-market outflows.

Fed Vice Chairman Stanley Fischer said Monday in New York that “a smooth path upward in the federal funds rate will almost certainly not be realized” as the world’s largest economy encounters shocks such as the plunge in oil prices. Global funds, which pumped in a record $42 billion into Indian bonds and stocks in 2014, have added another $12 billion to their holdings this year, data compiled by Bloomberg show. Local sovereign bonds advanced Tuesday.

“Fischer’s comments have reinforced the Fed’s view that there’s no rush to raise interest rates,” said Navin Raghuvanshi, a currency trader at DCB Bank Ltd. in Mumbai. “We don’t expect an increase before September, and any Fed action post that will be data dependent.”

 The rupee closed little changed at 62.2475 a dollar in Mumbai, according to data compiled by Bloomberg. It climbed as high as 62.14 earlier, the strongest level since March 4. The currency has risen 1.3 percent this year, the best performance in Asia.

The yield on the 8.4 percent government notes due July 2024 fell one basis point, or 0.01 percentage point, to 7.75 percent, prices from the central bank’s trading system show.

India’s government plans to borrow 3.6 trillion rupees ($57.9 billion) in the first half of the financial year starting April 1, Finance Secretary Rajiv Mehrishi said in New Delhi yesterday. That’s 60 percent of the full-year gross borrowing amount of 6 trillion rupees announced in last month’s federal budget.

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Indian rupee vs US dollar: Currency war in full swing

What a week for the US Dollar bulls. It was hard to find a currency which stood up against the relentless surge in the US Dollar. Indian Rupee, which has been an outperformer amongst the non-dollar currencies failed to hold its fort against the almighty Greenback. Rupee weakened from 61.90 to all the way down to 63.00 handle on spot. However, the same Rupee gained ground against both Euro as well as Pound, just goes on to show, how much those two currencies weakened against the US Dollar. Indian macro data did not carry much surprise. Globally, traders were not really deterred by the slew of weaker than expected macro data from US, all being brushed under the carpet in the name of “very cold winter effect”.

Euro zone’s central banks began their asset purchase program, under which it is estimated that ECB would be purchasing around 3 billion euros of government and private debt a day, with an overall target of 60 billion euros for a month. President Mario Draghi said purchases won’t be made of securities whose yield is below the central banks minus 0.2 percent deposit rate. As bonds rally during quantitative easing, more debt could be pushed out of eligibility as yields on shorter-term debt is driven below zero. Thanks to the asset price distorting QE from ECB, yield on about 27 percent of euro-area sovereign securities are below zero, which is clinically insane, but again, when did we claim that we are living in a normal world. We need to always keep in mind that cost of capital is fundamental to valuation of any financial and hard asset and central banks, with their controversial monetary policies, are distorting the interest rates to levels where compensation for risk is not available. At the same time, thanks to the distorted interest rates, value of almost all financial and hard assets have now moved out of their logical space. Investors and less traders, need to keep that thing in mind, as, when the time comes for mean reversion and reality check, one’s capital preservation could come under serious threat.

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Indian Rupee Completes First Quarterly Gain in a Year on Inflows

India’s rupee completed its first quarterly gain in a year on optimism the nation’s improving economic outlook will attract more inflows.

Asia’s third-biggest economy will probably grow 8.2 percent in the year starting April 1, the Asian Development Bank forecast March 24. That compares with a government estimate for 7.4 expansion this year and would be the fastest among major nations. Foreign funds have pumped $12.6 billion into local stocks and bonds in 2015, data compiled by Bloomberg show.

The rupee gained 0.9 percent since Dec. 31 to close at 62.4975 a dollar in Mumbai, prices from local banks compiled by Bloomberg show. The currency rose 0.3 percent Tuesday and fell 1 percent in March.

 “In the emerging-market space, India is one of the best shining stars and that’s attracting a lot of capital inflows,” said N.S. Venkatesh, the Mumbai-based head of treasury at IDBI Bank Ltd. “The currency has been stable with the current-account and fiscal deficits being managed well and that has put India into a big sweet spot.”

The Reserve Bank of India predicts the shortfall in the broadest measure of trade will be 1.3 percent of gross domestic product in the year ending March 31, the lowest since 2008, as a 48 percent drop in the price of Brent crude over the past year cuts costs for the nation that imports about 80 percent of its oil. The fiscal deficit in the period will be 4.1 percent of the GDP, the lowest in seven years, the government forecasts.

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Pressure on rupee continues on dollar strength; here’s why RBI will not let it depreciate

NEW DELHI: The Indian currency continued to weaken against the US dollar for the third straight day in a row on Wednesday. Analysts see intense volatility in the currency markets in the near term, but assure investors that the Reserve Bank of India (RBI) will not let it depreciate beyond a point.

The rupee is likely to inch closer to 63 per dollar in the near term as the US Federal Reserve is expected to maintain its view on interest rates, but RBI may not let it weaken beyond 64/USD, say experts.

“In case the rupee falls sharply below 63, expect the Reserve Bank of India to intervene and curb volatility. The rupee looks unlikely to go below the 64 level,” said Manisha Gupta, Commodities & Currency Editor, ET Now.

The rupee fell by six paise to a fresh two-month low of 62.82 in early trade. Forex dealers attributed the fall in the rupee to the dollar’s strength against other global currencies, as well as sustained capital outflows, but a higher opening in the domestic stock market capped the rupee’s fall, reports PTI.

But from a long-term perspective, analysts see the rupee appreciating against the US dollar and other currencies as economic fundamentals remain intact.

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38% of global investors see rupee in 65-70 range in 2015

NEW DELHI: Even as the strengthening of US dollar has been wreaking havoc on most emerging market currencies, global investors believe that rupee should largely remain stable in the range of Rs 60-65 against the greenback during the ongoing calendar.

In an investor conference hosted by Bank of America Merill Lynch(BofA-ML), an overwhelming number of global investors said that they see rupee trading in the range of Rs 60-65 in 2015.

Having said that, while a total of 57.40 percent of participants expect rupee to appreciate towards 55-60 range. As many as 50 global investors participated in the survey.

The US Federal Reserve’s two-day policy review, which will kick off this evening, will be crucial for world currencies.

While the data releases in the US have been mixed, with the overnight factory output figures suggesting the interest rate hikes are quite away, the event has kept global currencies, equities and bond markets on tenterhook.

It is believed that further recovery in the US economy and hikes in interest rate would spur demand for dollar and dollar-denominated assets, which may hurt global currencies against the greenback.

This has been a major reason why the dollar index managed to breach 100 level last week. The index gauge dollar against a basket of six major world currencies.

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Rupee gains against dollar on sustained of selling of USD

MUMBAI: The rupee strengthened by three paise to 62.67 against the US dollar at the Interbank Foreign Exchange in early trade today on sustained selling of the Green back by exporters.

Besides, early gains in domestic equity markets and the dollar’s weakness against other major currencies overseas also helped the rupee to log gains, forex dealers said.

The rupee had closed 11 paise higher against the American currency to 62.70 yesterday amid a good show by stocks and on selling of dollars by banks and exporters.

Meanwhile, the benchmark BSE Sensex rose by 70.59 points, or 0.24 per cent, to 28,806.97 in early trade today.

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