General gyan on the project scope and background

Hi all,

One (foreign) student asked me what the logic was behind the survey questionnaire. And it is not surprising why some may say this. Knowing where one is coming from during the design phase (of the questionnaire, in this case) helps in charting an analysis course better, perhaps. I promised to make a writeup about the logic and the story behind the questionnaire. So, this is the story, the thinking and the background to the project scope.

We live in what the Chinese would call 'interesting times'. The economic crisis that manifested as a global financial markets meltdown continues to cast its shadow not just on current employment and home values but also on longer term issues such as the ability of governments and private organizations to live upto their pension and healthcare liabilities/ obligations. Regardless of whether we choose to acknowledge it or not, the fact remains that a lot of our old assumptions and beliefs about how the world works, including the bedrock currency arrangement coded in the Bretton woods II system, may no longer hold anymore.

Sample these articles -

The end of retirement (from The Economist, June 2010)

Jobs, pensions and markets (from The Economist, Aug 2010)

This has huge implications for us ordinary people as well, even in countries like India which have (so far) been less affected by the crisis.

Unlike Indian government employees, whose retirement and lifetime pension is guaranteed by the Government of India  - which because it prints its own money is technically safe from bankruptcy and default - the rest of us cannot really say our retirement and pensions are guaranteed in any real measure. Many young people in the US for instance question why they have to pay into social security when chances are they will never get to see a penny from there by the time they retire. We are indeed in the vanguard of the generations that will have to plan for their futures in exacting detail in the backdrop of increasing uncertainty in the years to come.

That automatically brings up its own host of interesting questions - How will we do? What will do? More generally, what is the current crop of professionals in their 20s and 30s thinking and planning in this scenario? How much confidence do they have in the current set of assets and institutions to protect their savings against inflation? What are their concerns, their preferences and their constraints? How and how much does their view and their actual investment pattern depend on their age, gender, wealth, life cycle stage, nature of employment or other factors?

Mind you, this is not idle chatter - In the aggregate, Indian household savings have averaged about 32-35% of GDP annually in recent years. Unprecedented, really. And thanks to all the visionaries starting with Shri PVN Rao and onto Shri AB Vajpayee and then Shri Manmohan Singh for enabling this. Coupled with an Incremental Capital Output Ratio (ICOR) of about 4 to 1, we are essentially assured growth of about 8% p.a. in real terms for at least the next few years based on sustainable internal demand alone. The choices that our target population segment - the young upwardly mobile urban middle class - will make will be multiplied several times fold as these people tend to be opinion leaders and trend setters also. Where will this mass of money flow to - which asset classes? In what proportion? With what confidence should conditions change down the line? So many questions! The project is one attempt to bring some structure and order to this confusing mass of questions by the application of the scientific method and statistical analysis to understand this conundrum. OK, that is the big picture view of a very complex issue. You've already read the scope document, so you now also have a good handle on the actual problem XYZ corp is handling.

Now, kindly read through this post made here in full if you haven't already:

http://marketing-yogi.blogspot.com/2010/10/some-phase-i-guidance.html

This summarizes my initial views on how to tackle a question as complex as this - basically that:

(i) we limit the scope to what can be done realistically. In this case, we focus only on the big-picture, only at the broad asset class level and not go into details of asset sub-classes and particular schemes available therein. I chose to focus broadly only on Equities (including MFs, SIPs and demat equities), Fixed income plans (bonds, insurance policies that fall under this purview, certain pension and annuity plans etc), property (different types and in different types of cities)

(ii) we focus only on the distribution of asset class preferences in the target population - perhaps as functions of demographics and psychographics.

(iii) we come up with recommendations for which asset classes to go with - some sort of ranking perhaps - given the preference structure of the target population.Any secondary analysis that uses population sizes for such segments (e.g. from the Marketing Whitebook) would be a great plus, IMHO.

OK. This post is at a general, big-picture level and is long enough as-is. Shall continue with more specific guidance in subsequent posts.

Again, not all of you may find general gyan of this sort immediately useful. That is fine. Feel free to go with whatever you have in mind. However, have someone in the group look for updates on the specific guidance.

Sudhir