Advice for the Wise - August 2015

The World This Week 27th July to 31st July, 2015

The World This Week - 20th July to 25th July, 2015

RBI Monetary Policy Review June 2013

RBI Monetary Policy Review June 2013 from Karvy Private Wealth

Indian economy: Is there a silver lining?

As the storm clouds gather over the economy, is there a silver lining? Yes -- more than one. To see them, we have to stop looking in the rear-view mirror at all the accumulated problems and negative trends, and focus on current trends.

Take oil prices, which have fallen more sharply than the rupee has dipped; Brent crude is now below $100 per barrel, down from a March peak of $126 -- a 20 per cent drop in 10 weeks.

Other than a brief point in October, the last time oil was this low was in early 2011. In all but three months in the last financial year, oil was ruling at more than $110.

The benefit of the oil price drop won't show for domestic buyers because of the rupee's sudden dip, and because diesel and cooking gas were already underpriced in the retail market. But the macroeconomic impact on the New Year’s trade deficit will be substantial.

The same goes for commodities in general; the CRB commodities index (which includes oil) has dipped by a sharp 22 per cent, from 352 a year ago to 273 now. Since India is a net commodity importer, this too will help reduce the import bill in dollars, though once again domestic prices won't see much of a change because of the rupee's fall.

The second silver lining is provided by the rupee's depreciation. This is portrayed in much of the media as a huge negative development -- a view seemingly endorsed by the finance minister, who called it a "grave" problem.

It is, of course, problematic in that it prevents the global price fall from being reflected in domestic price trends, and it will cause headaches to companies that have borrowed overseas and not hedged their positions.

But any price movement creates winners and losers, and the dominant economic effect here is that it will help import substitution, which will give a boost to domestic manufacture, and boost export competitiveness.

An uptick in manufacturing will be the single biggest positive development to look forward to, given the stagnation in this vital segment of the economy over the past half-year.

The third positive development (missed by most people in the noise over poor GDP numbers) is that gross fixed capital investment – which includes everything from highways and airports to schools and hospitals, and of course plant and machinery – has moved up a small notch in the latest quarter.

This could point to the hoped-for revival of investment, and may continue to improve since the general expectation is that interest rates will fall even if slowly. The fourth silver lining is that some special factors that operated last year will not do so now.

The drop in mining in the first three quarters of 2011-12, for instance, was on account of the sharp drop in gas production by Reliance, and mismanagement of the coal sector. That fall has already been reversed in the fourth quarter, so a downward-pull factor is out of the way.

Meanwhile, there are also reasons why the clouds won't go away quickly. The monsoons look iffy, and could hurt both growth and inflation.

The world economy is slowing down, so export markets will be slack. International money is fleeing to the safety of places like Germany and the US, so there could be capital outflow, which could put pressure on the rupee.

If we had a government that was not in denial and not paralysed, and which had the capacity to focus on problems and deliver solutions, the positive factors could have been exploited. We are paying the price for keeping a dysfunctional and seemingly clueless government in office.

India Ranks No:2 in Production Of Rice

One of the reasons why food prices are increasing all across the world is the shortfall in agricultural output.

With wild fires destroying much of Russia's production, floods wreaking havoc in Australia and the United States unable to keep output up, prices are at an all-time high.

So, let us see which countries are producing how much when it comes to rice and paddy, based on Food and Agriculture Organisation data.   

China
Production (metric tonne): 1.966 billion
World ranking: 1
Rice production in China is an important part of the national economy.
China is the world's largest producer of rice, and the crop makes up a little less than half of the country's total grain output.
China accounts for 26 per cent of all world rice production.

India
Production (metric tonne): 1.337 billion
World ranking: 2
From a nation dependent on food imports to feed its population, India today is self-sufficient in grain production and also has a substantial reserve.
The progress made by agriculture in the last four decades has been one of the biggest success stories of free India.
Agriculture and allied activities constitute the single largest contributor to the Gross Domestic Product, almost 33 per cent of it.
Agriculture is the means of livelihood of about two-thirds of the work force in the country.

Indonesia
Production (metric tonne): 643.989 million
World ranking: 3
In the 1970s, Indonesia was a major rice importer, but by 1985 self-sufficiency had been achieved after six years of annual growth rates in excess of seven per cent per year.
From 1968 to 1989, annual rice production had increased from 12 million to 29 million tonnes, and yields had increased from 2.14 tonnes of padi (wet rice growing) per hectare to 4.23 tonnes per hectare.
Indonesia produces 643.989 million metric tonnes of rice.

Bangladesh
Production (metric tonne): 477.240 million
World ranking: 4
The dominant food crop of Bangladesh is rice, accounting for about 75 per cent of agricultural land use (and 28 per cent of GDP).
Rice production increased every year in the 1980s (through 1987) except 1981, but the annual increases have generally been modest, barely keeping pace with the population.

Vietnam
Production (metric tonne): 388.955 million
World ranking: 5
Rice production in Vietnam in the Mekong and Red River deltas is important to the food supply in the country and national economy.
The Mekong Delta is the heart of the rice producing region of the country where water, boats, houses and markets coexist to produce a generous harvest of rice.
Vietnam produces 388 million metric tonnes of rice.

Myanmar
Production (metric tonne): 326.820 million
World ranking: 6
Rice is the most important agricultural commodity of Myanmar.
The crop is cultivated along the river valleys, coastal areas and in the Irrawaddy River delta.

Thailand
Production (metric tonne): 314.629 million
World ranking: 7
Thailand has a strong tradition of rice production. It has the fifth-largest amount of land under rice cultivation in the world.
The most produced strain of rice in Thailand is jasmine rice, which is a higher quality type of rice.
Thailand produces 314 million metric tonnes of rice.

The Philippines
Production (metric tonne): 162.664 million
World ranking: 8
Rice is the most important food crop, a staple food in most of the country.
It is produced extensively in Luzon, the Western Visayas, Southern Mindanao and Central Mindanao.

Brazil
Production (metric tonne): 126.518 million
World ranking: 9
There are two main - and very different - areas of rice production in Brazil: the older, well-established irrigated areas of the south and the newer non-irrigated (ie "upland") areas of the center-west and northeast.
The main producing states that comprise Brazil's southern rice area are Rio Grande do Sul and Santa Catarina, which produce about 47 and eight per cent of the country's total rice production, respectively.

Japan
Production (metric tonne): 105.925 million
World ranking: 10
The most striking feature of Japanese agriculture is the shortage of farmland. The 4.63 million hectares under cultivation in 2008 has shrunk, with most farmers over 65.
However, the land is intensively cultivated. Paddy fields occupy much of the countryside, whether on the alluvial plains, the terraced slopes, or the swampland and coastal bays.
Japan produces 105 million metric tonnes of rice.

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Source - http://www.rediff.com/business/slide-show

What are the prospects for pension reform in India – World’s third largest economy?

Finance Minister Pranab Mukherjee on Thursday introduced the Pensions Fund Regulatory and Development Authority (PFRDA) bill, paving the way for long-awaited pension reforms in Asia's third-largest economy.The bill, mainly aims to speed development of the sector and limit the government's pension liabilities.

Let’s shed some light on questions regarding pension reform in India!

WHAT ARE MAIN PROVISIONS IN PENSION BILL?
The pension bill would bring into law a pension system that was introduced under an executive order in 2004 that allows private companies to run federal and state government pension funds, investing part of the cash in Indian stocks and corporate bonds. Up to 50 percent can be invested in equities.
The system would be mandatory for most state employers, while private sector employers and staff would have the option of participating. The only pensions that would remain fully under government control are for the armed forces.
The bill would give the Pension Fund Regulatory and Development Authority statutory powers to regulate and develop the industry.

WILL FOREIGN PLAYERS BE ALLOWED?
The legislation is silent on allowing foreign companies to manage pension funds due to strong opposition from left parties and trade unions, which may disappoint global players eager to manage retirement assets in the world's second most-populous country.

Source: Reuters

$1 trillion infrastructure investment for India: Ahluwalia

The 11th Five Year Plan that begins in 2012, is going to have some pleasant surprises. One of them being ‘India will double its investments in infrastructure to $1 trillion with half of that expected from the private sector, Planning Commission Deputy Chairman Montek Singh Ahluwalia has said.
There is inclusive growth which the 11th Five Year Plan aims at. The growth is not going to be individually in private sector or foreign investment, but the generic would be highlighted too, which is nature of the policy.
Ahuluwalia claims, 'In India, it is clear: It's private sector-led growth in which the government plays a very important role in providing the infrastructure that will make this growth possible, and it's the social policy that will make growth inclusive.
Sources reveal that, Jamshyd N. Godrej, chairman and managing director of Godrej and Boyce Manufacturing Co, said that inclusive growth was transforming India. He pointed to 'Bihar, a state that had been the poster boy of no development, is now in the vanguard of growth'.
Agreeing with Godrej, Janmejaya K. Sinha, chair for Asia-Pacific region with The Boston Consulting Group, said the obligation of financial institutions and banks to serve the underprivileged people had thrown open immense opportunities.
'In India, some 55 percent of people are excluded from financial services, and most of these are below 30. So, there's an opportunity of having 400 million customers for 45 years,' Sinha said.

Source: Yahoo Finance

Good News for Honest Tax payers!

Good news awaits thousands of taxpayers in the country. The Income Tax department is mulling a proposal for providing them small refunds of below Rs 1 crore (Rs 10 million) within a month's time.

Delay in receiving income tax refunds has been a major complaint of taxpayers and the department is hoping to address the issue on a priority basis. According to Income Tax officials, the proposal pertains to small tax refunds of an amount below Rs 1 crore.

I-T department officials are working for the benefit of honest taxpayers and give them the respect they deserve. They will be very firm with tax evaders without being harsh. We will make sure that a honest taxpayer is respected and will also try to create maximum trust for honest taxpayers.

The Income Tax department is in the process of issuing more than 40 lakh refund cases before April this year. The department has streamlined the refunds process as the statutory time limit to process the return and issue refund in the financial year 2009-10 is March 31 and almost 49 lakh such cases involving crores of rupees are pending with the department, a senior I-T officer said.

The Income Tax department is also in the process of establishing three more I-T returns and refunds processing centers at Manesar (Gurgaon), Pune and Kolkata on the lines of the existing centre at Bangalore. To fasten the refunds through banks, the Refund Banker Scheme has been made operational in the entire country with the help of the State Bank of India by the department.

Source :Rediff business

India ranks among the top destinations for global equity investors!

When it comes to global fund flows, India easily ranks among the top destinations for global equity investors, who have pumped in a record net $29 billion so far in 2010.

STV is the ratio of traded turnover to market capitalization and a high ratio signifies better liquidity. Globally, investors are attracted to markets with a high STV, as it means a lower impact cost. Again, impact cost is the deviation from the ideal price that an investor would have otherwise paid for buying or selling a stock. This happens when the ‘buy’ or ‘sell’ order is large compared with the trading volume in the stock.

Experts attribute factors like concentration of trading in a few companies, high-promoter holding and low retail participation in India to this trend. STV for the NSE and BSE stood at around 60% and 20%, respectively, this year, compared with over 100% for stocks in Australia , Korea, Shanghai, Shenzhen, Taiwan and Tokyo, among others , according to data by World Federation of Exchanges (WFE).

India is still in many ways in the first wave of entrepreneurship due to which promoter holding is very high. Also, large number of fresh issuances is leading to increase in market cap but low turnover.

The impact of STT and low arbitrage opportunities has kept the high volume creators and arbitrageurs away from the market and unavailability of single tick-data does not allow for high frequency trading,” he said. Promoter shareholding in India is over 50% in the Indian market, compared with 10-15 % in countries like the US.

Source :ET

Investment Mantras For New Year

As the  year comes to an end, it marks one of the best periods in India’s economic history. The period after the global crisis saw the emergence of the Indian economy as one of the fastest growing with a good banking system, with substantial capital comfort and no major delinquency problem, consumer confidence and corporate strength.

While this is true, a sharper rise in stock markets has made the formulation of an elaborate investment strategy a complex task. This is because the best returns for investors come if they invest while asset values are cheap. In India, gold and real estate have touched their all-time highs while stocks are about 10% below their all-time highs. The global scenario will play an important role in future investment strategies.

Investing in themes that have underperformed so far could be a good strategy. This is because themes are cyclical in nature and therefore investing in themes that have underperformed present greater upside and better risk adjusted return potential. For instance, mid-caps underperformed between 2006 and 2009 and then peaked in the following year.

 Infrastructure was another sector that outperformed substantially during the four years ended 2007 and then underperformed during the next two years. Despite the rise in the general market, infrastructure-driven sectors continue to trade at relatively reasonable valuations. A large part of the rally has been driven by consumption driven sectors and consumption-driven growth in India’s GDP in the last three years.

As investors look towards equity as an investment option, it is important not to ignore debt. There needs to be an increasing focus of introducing retail investors to debt funds. From the perspective of asset allocation, debt funds have not yet been entirely leveraged by retail investors. It is popularly perceived that debt mutual funds are primarily institutional driven. On the contrary, mutual funds have been working towards providing a complete product suite for investors including debt mutual funds. This is an asset class that should be leveraged in the coming year given the scenario of expected volatility. Investing is all about being systematic, ensuring discipline and keeping it simple. Following the three mantras of starting early, investing regularly and systematically following asset allocation will translate to successful investment strategies.

Source : ET

Is there a link between market boom & cricket victory?

The 484-point surge in BSE benchmark Sensex on Wednesday coincided with the triumph of Indian cricket team against Australia -- thus corroborating claims of a correlation between trends in stock markets and cricket field.

Though it was purely a coincidence, many analysts believe there are some sentimental relationships between cricket and Dalal Street.
A recent research by Monash University in Australia showed that when India's cricket team loses one-day matches, stock markets take a beating.
Research by economists Russell Smyth and Vinod Mishra of Monash University suggested that the performance of the Indian cricket team in one-day matches can significantly impact the fortunes of the Indian stock market.

In the second test match, Tendulkar (53 not out) added a half century to his first innings double ton and capitalised on the foundation laid by debutant Cheteshwar Pujara (72) as India easily surpassed the target of 207 in the final session of the last day.
After trading in a narrow trading range for the past 7 days, the bulls were back with a bang on Dalal Street on Wednesday.

The BSE Sensex soared over 450 points and the NSE Nifty rose by over 140 points, among the biggest single-day gains in recent memor.


Source: Rediff

How India is going Private?

Many structural changes have taken place in the economy over the past two decades -- a greater share for international trade in GDP, higher savings and investment rates, even increased investment in infrastructure.

One change that is intuitively accepted is the fact that the public sector is no more in the driver's seat; it has made way for the private sector. In other words, the shares of the public and private sectors have been virtually reversed. There are several reasons why India has gone 'private' -- but classical privatization is not one of them, though a handful of state-owned enterprises were sold to private interests by the Vajpayee government.

A more important reason for change is the opening up of new areas to private sector investment (telecom, aviation, banking, insurance, etc.), even as public enterprises in these sectors have been held back by ministerial interventions of various sorts.

Similarly, the Budget has been saddled with a variety of handout schemes that have prevented it from putting money aside for capital investment.
Most people welcome the greater competition and competitiveness that the advent of the private sector has introduced. Indeed, the higher economic growth rate may itself be a product of the shift from public to private.


Source|Rediff
Photo| Livemint.com

IMF sees India booming at 9.7% in 2010!

The International Monetary Fund has projected the Indian economy will grow by 9.7 per cent in 2010 and 8.4 per cent in the next fiscal, driven by robust industrial production and macro-economic performance.

"India's macroeconomic performance has been vigorous, with industrial production at a two-year high. Leading indicators -- the production manufacturing index and measures of business and consumer confidence -continue to point up," the IMF said.

According to IMF Growth is projected at 9.7 per cent in 2010 and 8.4 per cent in 2011, led increasingly by domestic demand. Robust corporate profits and favorable external financing will be encouraging investments.
According to the World Economic Outlook report, growth in emerging Asia economies stands at about 9.5 per cent, with robust demand from China, India, and Indonesia benefiting other Asian economies.

Source: Rediff

India’s tourism sector is on a roll!

India has been experiencing an increased inflow of foreign tourist lately. According to the Tourism Ministry Data, there has been a growth of 12.6 per cent in foreign tourist arrival in September 2010 over September 2009 as compared to a negative growth of 4.1 per cent registered in September 2009 over September 2008.

There were 38.36 lakh foreign visitors during January-September period this year with a growth rate of 10 per cent as compared to 34.88 lakh visitors for the same period last year.
The foreign exchange earnings this year from the tourism has also gone up considerably as compared to last year. It is expected that tourism as a sector would gain a lot of popularity in the coming years creating sustainable employment opportunities on a reasonable scale for the Indians.

Source: Rediff

Indian Billionaires on the Forbes Richest People in United States!

Recently Forbes released its Forbes 400 Richest People in America, a list topped by Microsoft founder Bill Gates. Let’s take a look at the Indians who made it to this list leaving no stone unturned to make us feel proud.

1. Vinod Khosla

Vinod Khosla born (January 28, 1955) is an Indian-American venture capitalist and one of the most influential personalities in Silicon Valley. He occupies the 308th spot on the list.

2.Bharat Desai

Bharat Desai is an Indian American entrepreneur and founder of Syntel. He currently serves as Chairman of Syntel headquartered in Troy, Michigan.Desai co-founded Syntel in 1980. Desai was named as the Entrepreneur of the Year by the University of Michigan’s Stephen M. Ross School of Business and won the IIT Alumnus of the Year award from the Indian Institute of Technology, Mumbai. He ranks 252 on the list.

3.Kavitark Ramn Shriram

Kavitark Ram Shriram is the founding board member of Google and one of the first investors in Google. He earlier served as an officer of Amazon.com working for Jeff Bezos, founder & CEO. He stands at 288th rank on the list.

4.Romesh Wadhwani

Romesh Wadhwani is the founder, Chairman & CEO of Symphony Technology Group, a private equity firm investing in software and software services companies. He is ranked as the 290th richest man in the United States.


Source: Hidustan Times

Ground Rules before you plan for Fixed Deposits!

Over the last few months many companies have observed that the demand of Fixed Deposits has considerably gone up after the inflation entered into double digit territory making the banks offer not a very great deal of return.

Here are a few things that you should consider before investing in any company:
Can you part with the money: Before investing in a company you should ask for yourself  whether you can actually part with the money for the term you have chosen for the deposits, this is because compared to MF’s or bank FD’s, corporate FD’s are not very liquid.

Does the name ring a Bell? : Before investing it is always advisable to check with your financial adviser about the credentials of the company. You can always check with the ratings in order to see where the company stands.

Know the Risk: Just like the stock market, the company deposit space is also inhabited by a variety of species, depending on which the interest rates could vary.

How much should you invest?: Remember one thumb rule ‘ Never put your eggs in one basket’, just because a company is offering better interest rate you need not rush in to put in your entire corpus. It always makes sense to diversify your investment.

Source: Economic Times

Unleashing the potential of rural India!

With the country’s economy progressing at a good rate, the India rural markets have started gaining a lot of popularity as they have become more promising, Experts believe that are a lot of factors that are creating investment opportunities in the rural India lately.

The increase in procurement prices [the government sets the minimum support price -- MSP -- for many farm products] has contributed to a rise in rural demand. A series of good harvests on the back of several good monsoons boosted rural employment in agricultural and allied activities.
Policy measures like the waiver of agricultural loans to the tune of US$13.9 billion and the NREGS have really escalated the stated of rural economy.

With the increased number of banking facilities in rural India, the purchasing power is also expected to grow in the coming years, bringing about a change in the buying capacity. Rural India is evolving as a market for durable goods, telecom as a lot of companies have started offering products keeping in mind the needs of the rural lifestyle.

If you plan to venture out into the rural India, you would have to consider these options in terms of product offering:
1.The affordability of the product which you offer in rural markets is very important to be considered as the income level in rural India differs from that of urban areas.
2.Size and the design of your product should be such that it suits the rural lifestyle and their durability requirements.
3.Convenience orientation is again one of the aspects that you would have to consider as the rural consumer is very skeptical about accepting new technology.
4.Long term benefit: If you offer a product with a greater shelf life and flexible usage that would perfectly match the need of rural consumers.


Source: WSJ

Have you assessed the real value of your business yet?

Early stage venture capital investing in India is emerging as the flavor of the season propelled by the country’s burgeoning economy, so essentially it becomes very important for one to valuate one’s business before approaching an investor.

Here are some simple pointers that would help you know what the investors actually look at before funding your enterprise:

Commercial aspects: The commercial aspects of the venture including its core markets, target audience, market reach and the scalability options.

Skill set: The skill of a start up’s management team – A strong team with relevant industry experience, contacts and track record which will attract a premium valuation.

Analyzing finances: Estimating the potential cash flows, capital required during its life cycle and the return on the capital invested.

Totality: The total value of cash, assets and intangibles already invested by the entrepreneur into the venture.

Investors generally believe that aspiring entrepreneurs should be better prepared to hard sell their ideas and company to gain a fair valuation. Not to forget an investor would also take into point the return on investment which is very crucial.

It becomes the responsibility of the entrepreneur to convince the investor the potentiality of the business and how it can become big given a time frame of 4- 5 years.

Source : ET

What are price deflators?

Recently the GDP fiasco was blamed on the use of improper deflators, here’s an explanation that would help you understand it better

What is a price deflator?
 A deflator is used to convert data compiled over a period into prices prevailing at an earlier point in time. For example, the current price of a television can be deflated to what it would cost say three years ago. Essentially a deflator removes the effect of inflation from data, making it comparable across periods.

How is it used in India?
In India a combination of Wholesale Price Index (WPI) and Consumer Price Index (CPI) is used as deflator. The usage is dependent on a particular estimate we are trying to deflate. There would be different deflators for private consumption and government consumption. There is a difference in quarterly and year-end deflators; this is due to the fact that prices are not constant. At the yearend we have an overall measure of WPI/CPI which is used appropriately. This is why year-end estimates of GDP are more reliable that quarterly estimates.

Source: ET