The year gone by
The year 2011 has come to an end and we now embark upon a new year with tis own uncertainties and possibilities. So, what should investors expect going ahead? How should they tackel the unraveling economic downturn? What should be the playbook? Here, we attempt to address this and other peripheral issues.
To say that the past couple of years have been extremely difficult for Indian investors would be an understatement. The global economic situation continues to be fragile. According to RBI’s December 2011 Mid-Quarter Policy Review, the recent European Union Summit agreement did not really succeed in easing the negative market sentiment. And with no credible solution as yet to the immediate sovereign debt problem, risks of persistent financial turbulence as well as a recession in Europe remain high.
At the EU Summit, the European leaders agreed on a stronger coordination of economic policies to strengthen fiscal discipline. While this would be a welcome step for the medium- to long- term sustainability of the Euro area, the current short-term funding perssures still continue. While Q3 Euro-area growth came in at just 0.8%, growth in 2012 is expected to be even weaker. Also, crude oil prices remain elevated. A combination of these factors poses the highest degree of risk to emerging market economies, including India.
Consequently, India and other countries in Asia have witnessed currency depreciation as well as policy rate changes. The news on the domestic front, too, is not very good. Growth is definitely down. Significantly, the Index of Industrial Production (IIP) grew at -5.1% in October 2011. Moreover, GDP has de-grown to 6.9% in Q2FY12 versus 8.6% clocked last year, while inflation at 9.11% continues to be high, at least above the comfort level of the RBI.
To make matters worse, the rupee has fallen considerably. Since August 5,2011, the day when the US debt downgrade occurred, the rupee had depreciated by about 17% against the US dollar (as of December 15,2011). Given the scenario, the RBI has taken setps to attract inflows, including raising limits on investment in government and corproate debt, deregualting savings bank rates as well as NRI deposit rates, and increasing the ceiling on corporate borrowings abroad, among others. However, it remains to be seen whether these are effective in arresting the currency fall. Basically, the outlook going forward remains uncertain.
Lingering uncertainty
They say that when it rains, it pours. As we all know, much needs to be done on the policy and reforms front too. We need meaningful reforms and we need them fast. The bottlenecks as well as manipualtion in food supply are well known. For example, it is common knowledge that the producer/farmer gets only a fraction of the price which the end-consumer eventually pays, with the middle-men pocketing much of the difference. In other words, while we are paying through our noses for the daily food on our table, there have been regular reports of farmers committing suicides due to financial distress. Meanwhile, the supply chain is laughing all the way to the bank.
The irony is that huge quantities of food grains are rotting in government warehouses for lack of proper storage and distribution facilities. The loopholes in the PDS (public distribution system) are well documented. However, successive state and central governments have done precious little to address the issue. Organized retail would benefit the farmer as well as the consumer. Unfortunately, vote bank politics has taken precedence over reforms in a sector that is in dire need of improved infrastructure.
Mining is yet another ‘minefield’. For instance, in regard to our energy needs, we have the reserves, yet we import coal. If public sector miners are inefficient, there is no reason that coal mining should not be opened up to the private sector. However, it appears that politics and reforms do not go hand in hand with each other.
Ina nutshell, when an economy is faced with a situation of continuously rising interest rates, a self-imposed paralysis on reforms, and a falling currency (perhaps the only fator where the government is not entirely responsible), it is but natural that business confidence gets hit and investors, both domestic and foreign, start getting anxious.
Investment strategy going forward
So, amid all this negativity, one has to ask oneself- what are the positives?
Well, fortunately a lot. Although GDP growth rate has decelerated, India remains one of the fastest-growing economies in the world. Our demographic and domestic consumption-led demand is oru strength. At a timewhen the West is in the midst of nationalizing its banking system, our banks are well-capitalized, well-regulated, and most are already nationalized. Moreover, with a savings rate of 35%, India is as insulated as it can be against a global recession.
Therefore, if the RBI manages to control inflation, thereby maintaining at least the domestic purchasing power of the rupee, in an economy that has limited dependence on exports, then growth can be maintained o the back of domestic consumption itself. Moreover, things are not likely to get any worse. Most of the bad news is already discounted in the valuations. So, it would be a mistake to reject equity as an asset class altogether. However, this is precisely what’s happening. Most investors have run out of patience and others are being discouraged and alarmed by media-fed doomsday predictions.
This, in itself, is the crux of the issue. Sell on bugles and buy on cannons. Timing the market is impossible, time in the market is crucial. Buy when everyone else is fearful and sell when everyone else is greedy. These are pearls of wisdom given to us by investment gurus, such as Warren Buffett. But it looks like these teachings are best appreciated on paper- practical applciation of the same is best left to the next guy. Clearly, no matter how good your stock or mutual fund picks are, if you don’t play this investing game with gumption, reason and a measure of level-headedness, winning is almost impossible.
What to do is the simplest part; it’s what not to do that will separate the men from the boys. Stick with your systematic investments. Do not expect to make any money; in fact, in the near future, you may even be in the negative. But that’s what systematic investments are meant for. When (and not if!) the next bull run occurs, it is precisely these very SIPs that will hold you in good stead.
The current scenario reminds us of yet another quote from Warren Buffett – “Five years from now, ten years from now, we’ll look back on this period and we’ll see that you could have made some extraordinary (stock market) buys. That doesn’t mean it won’t get more extraordinary a week or a month from now. We have no idea what the stock market is going to do next month or six months from now. We do know that the economy, over a period of time, will do very well, and people who own a piece of it will do well. Just don’t borrow money to buy yoru piece.” Of course, Buffett’s quote is on the American economy but it can literally be copy-pasted to our situation.
Conclusion
Putting it differently, one of the most effective ways to achieve success in your investments is to stick with the basics and shut out all the noise. Markets will rise and fall based on national, international, political, geo-political, economic and financial events. The trick is not to get sucked into the micro aspects and instead focus on the macro picture. In other words, whether your investments are profitable or not is not up to the external factors but entirely up to you. The question is – are YOU up to it?
A.N. Shanbhag
Leading Tax Consultant
Disclaimer: The views expressed in this article are the personal views of the author. They do not necessarily reflect the views of the Karvy Group or the orgnisation that the author represents.
Showing posts with label Enterprise investment. Show all posts
Showing posts with label Enterprise investment. Show all posts
Tuesday, 14 February 2012
Thursday, 8 September 2011
Update - Indian Stock Market
It’s becoming increasingly difficult to make sense of what's driving the Indian markets.
While outward indicators seem to suggest a downward trend, a sudden spike seems to challenge this view altogether.
No wonder, mutual fund managers have been stuck with non-performing stocks over the last several years, as it's becoming difficult to predict where the markets are headed.
While many would say volatility is the new normal, it wouldn't be far off the mark to say this turnaround may be short-lived, as India's domestic problems and global risk aversion continue.
Nearly a month after the S&P downgrade, emerging markets (and equity as an asset-class) have underperformed the developed markets, as the all too familiar risk aversion comes into play.
India's year-to-date underperformance has meant it has performed relatively better than other emerging markets on a monthly basis.
So, what can one make of the sudden upward swings in the benchmark indices?
Undoubtedly, this looks like 2008, when emerging markets bore the brunt of the risk-averse behaviour of foreign institutional investors.
This time, the sell-off is not that drastic. For four consecutive days, the Nifty has closed above the 5,000-mark and technical chartists expect the same to continue.
Despite this temporary relief rally (where selective buying may happen), the downward pressure on equity could remain.
For starters, despite the sell-off, India's valuations have not yet come off meaningfully, or so believe analysts. India's valuation premium over emerging markets has corrected over the course of the year, but not meaningfully.
Also, with GDP growth slowing to 7.7 per cent in the first quarter of FY12, corporate earnings may continue to slow down, triggering off a fresh round of EPS downgrades.
This is expected after the second quarter earnings season kicks off in October. To make matters worse, the investment cycle is showing no signs of reviving.
The Reserve Bank of India's (RBI) own projection of credit growth is lower than its deposit growth rates. Immediately, there seems to be no indication to suggest major FII fund inflows into India, as near-term concerns remain.
For equity investors in India, it is somewhat paradoxical to note that another wave of global risk aversion would actually be quite positive. This is because it would be likely to deter the RBI India from further tightening at its next policy meeting on September 16. This is because such increased risk aversion would likely lead to commodity price weakness
While most economists expect a 25-basis-point rise, all eyes will be on a sign on the stance of the central bank governor.
Source: http://www.rediff.com/business/slide-show
Follow us: www.facebook.com/karvywealth
While outward indicators seem to suggest a downward trend, a sudden spike seems to challenge this view altogether.
No wonder, mutual fund managers have been stuck with non-performing stocks over the last several years, as it's becoming difficult to predict where the markets are headed.
While many would say volatility is the new normal, it wouldn't be far off the mark to say this turnaround may be short-lived, as India's domestic problems and global risk aversion continue.
Nearly a month after the S&P downgrade, emerging markets (and equity as an asset-class) have underperformed the developed markets, as the all too familiar risk aversion comes into play.
India's year-to-date underperformance has meant it has performed relatively better than other emerging markets on a monthly basis.
So, what can one make of the sudden upward swings in the benchmark indices?
Undoubtedly, this looks like 2008, when emerging markets bore the brunt of the risk-averse behaviour of foreign institutional investors.
This time, the sell-off is not that drastic. For four consecutive days, the Nifty has closed above the 5,000-mark and technical chartists expect the same to continue.
Despite this temporary relief rally (where selective buying may happen), the downward pressure on equity could remain.
For starters, despite the sell-off, India's valuations have not yet come off meaningfully, or so believe analysts. India's valuation premium over emerging markets has corrected over the course of the year, but not meaningfully.
Also, with GDP growth slowing to 7.7 per cent in the first quarter of FY12, corporate earnings may continue to slow down, triggering off a fresh round of EPS downgrades.
This is expected after the second quarter earnings season kicks off in October. To make matters worse, the investment cycle is showing no signs of reviving.
The Reserve Bank of India's (RBI) own projection of credit growth is lower than its deposit growth rates. Immediately, there seems to be no indication to suggest major FII fund inflows into India, as near-term concerns remain.
For equity investors in India, it is somewhat paradoxical to note that another wave of global risk aversion would actually be quite positive. This is because it would be likely to deter the RBI India from further tightening at its next policy meeting on September 16. This is because such increased risk aversion would likely lead to commodity price weakness
While most economists expect a 25-basis-point rise, all eyes will be on a sign on the stance of the central bank governor.
Source: http://www.rediff.com/business/slide-show
Follow us: www.facebook.com/karvywealth
Tuesday, 22 March 2011
Best ways to Invest in Gold.
There are four perfect avenues to invest in gold:
You can do so through physical gold (coins and bars), gold exchange-traded funds (ETFs), feeder funds and the e-series (popularly called, e-gold) launched by the National Spot Exchange.
Of these, paper gold is favoured unanimously as an investment avenue.
Buying physical gold is not attractive because of the higher purchase price and lower selling price. Storage and safety are the other issues.
Gold ETFs, the oldest form of paper gold, are not favoured by many, as these require a demat account to invest. Fund houses levy an expense ratio of only one per cent.
But the extra charges come by way of the brokers' fee of up to 0.5 per cent. The annual maintenance cost of a demat account is Rs 400-500.
No wonder, financial planners say, investing a lump sum.
Next is the e-gold option. The costs here are similar, but only in the first month. Since e-gold allows Das to invest through systematic investment plans (SIPs), her first month's cost (Rs 400-500) would reduce from the second month, incurring only brokerage costs.
"One can accumulate the units over time. And, use these for child's marriage or making jewellery in the future," says a financial planner.
However, if you opt for physical delivery, costs will increase further.
Financial planner Pankaj Mathpal says the delivery option should be the last resort, because of the delivery fee of Rs 200, irrespective of the quantity, and Rs 50 for every such request charged by the depository.
At present, the National Spot Exchange allows exchanging e-gold units into coins or bars of 8, 10, 100 gm and one kg.
It charges Rs 200 each for conversion of 8 and 10 gm coins, Rs 100 for 100 gm and no charge for one-kg bar.
You will also have to pay a value-added tax at one per cent and Octroi for conversion of electronic units into physical coins (for Mumbai = 0.1 per cent).
You can buy gold in its physical form, such as coins and bars, only from banks and jewellers.
Typically, banks will charge you between 10-15 per cent higher than the market price. Jewellers will sell it for 5-10 per cent higher.
The option is the post office. They charge a premium of 15-20 per cent on gold coins.
If purchase gold from banks, jewellers or post office, you can lose anywhere between five and 20%. Finally, there are gold feeder funds.
"If you do not have a demat account, gold feeder funds are a good option, as it does not make sense to open a demat account only for buying gold via ETFs," says Hemant Rustagi of Wiseinvest Advisors.
In addition, there is an option to do SIPs as well. The only expense here is the expense ratio of 1.5 per cent.
This implies that Das will be able to save Rs 4,925 (expense ratio Rs 75) the highest among the four options
.
Source: http://www.rediff.com/business
Follow us: www.facebook.com/karvyprivatewealth
You can do so through physical gold (coins and bars), gold exchange-traded funds (ETFs), feeder funds and the e-series (popularly called, e-gold) launched by the National Spot Exchange.
Of these, paper gold is favoured unanimously as an investment avenue.
Buying physical gold is not attractive because of the higher purchase price and lower selling price. Storage and safety are the other issues.
Gold ETFs, the oldest form of paper gold, are not favoured by many, as these require a demat account to invest. Fund houses levy an expense ratio of only one per cent.
But the extra charges come by way of the brokers' fee of up to 0.5 per cent. The annual maintenance cost of a demat account is Rs 400-500.
No wonder, financial planners say, investing a lump sum.
Next is the e-gold option. The costs here are similar, but only in the first month. Since e-gold allows Das to invest through systematic investment plans (SIPs), her first month's cost (Rs 400-500) would reduce from the second month, incurring only brokerage costs.
"One can accumulate the units over time. And, use these for child's marriage or making jewellery in the future," says a financial planner.
However, if you opt for physical delivery, costs will increase further.
Financial planner Pankaj Mathpal says the delivery option should be the last resort, because of the delivery fee of Rs 200, irrespective of the quantity, and Rs 50 for every such request charged by the depository.
At present, the National Spot Exchange allows exchanging e-gold units into coins or bars of 8, 10, 100 gm and one kg.
It charges Rs 200 each for conversion of 8 and 10 gm coins, Rs 100 for 100 gm and no charge for one-kg bar.
You will also have to pay a value-added tax at one per cent and Octroi for conversion of electronic units into physical coins (for Mumbai = 0.1 per cent).
You can buy gold in its physical form, such as coins and bars, only from banks and jewellers.
Typically, banks will charge you between 10-15 per cent higher than the market price. Jewellers will sell it for 5-10 per cent higher.
The option is the post office. They charge a premium of 15-20 per cent on gold coins.
If purchase gold from banks, jewellers or post office, you can lose anywhere between five and 20%. Finally, there are gold feeder funds.
"If you do not have a demat account, gold feeder funds are a good option, as it does not make sense to open a demat account only for buying gold via ETFs," says Hemant Rustagi of Wiseinvest Advisors.
In addition, there is an option to do SIPs as well. The only expense here is the expense ratio of 1.5 per cent.
This implies that Das will be able to save Rs 4,925 (expense ratio Rs 75) the highest among the four options
.
Source: http://www.rediff.com/business
Follow us: www.facebook.com/karvyprivatewealth
Wednesday, 19 January 2011
Five investment products to suit your needs
Young investors have varied objectives while choosing their investments buying a home, purchasing a car, their child's education, early retirement plan etc are some of the goals individuals set for themselves early in life. Each of the goals may require a specific type of investment. Further, it is important to time your investments in such a manner that they pay returns at a time when you need the money.
It is important to set your goals from your investment so that your investment can work accurately for you. For example, one must know the time and amount of money that he / she will need in the future. At the same time it is important to evaluate the risk involved in the investment as well as the amount of returns and amount of initial investment required.
ETFs
This is a relatively new path of investment and one is likely to have the fear of the unknown. However, considering the returns that ETFs have fetched for its investors, it is certainly amongst the top five investment options of this era. Much like stocks, an investment in ETF should be for the long run.
Gold
Gold is a high return and traditionally favored investment option and stands good in most economic conditions. Even during times of recession, gold prices increased at an average rate of 19.30 per cent in 2009 and 12.5 per cent in 2010. An investor can buy gold as a long term investment. Long term goals like your child's marriage are well covered by investments in gold. You can also use 24 karat gold coins / chips to make jewelry for the wedding. Or you may sell the gold and use the money to meet any other wedding expenses.
Fixed Deposits
This is another safe investment with reliable and known returns. One can invest in FDs with a predefined goal for its returns. One knows the amount of returns as well as the timing of returns on investment in case of an FD. Hence one can reliably plan expenses and time them with the FD maturity date.
Interest amount of FDs can be timed with repayment of loan installments. So, if you want to buy a car or two-wheeler on loan, you can invest in FDs and match the interest amount with loan installments, either in whole, or part. On the other hand, you can time your purchase to make the down payment towards the vehicle from the proceeds of a FD. In case you are willing to take higher risk, floating rate FDs may be an option for you. In a growing economy, a floating rate FD has a higher earning potential in comparison to traditional FDs.
Mutual Funds
Mutual Funds are another 'must have' in your investment portfolio. The SIP system enables investors to take modest steps into mutual fund investments. You need not invest a lump sum - one can invest an amount of Rs 500 per month only under most SIP plans of mutual fund houses. Since experts handle your money, mutual fund investments are less risky as compared to stocks. They also have a large earning potential. However, it is difficult to predict the amount of returns. It is therefore difficult to time your investment for an exact amount of return.
Stocks
As compared to fixed deposits, investments in equity, has on an average paid 26.5 percent higher returns in 5 years. Even for a longer term, investment in stocks has paid higher returns even in comparison to real estate and gold. Here is a comparison of investment in stocks against other options. Equity investments are good for long term goals like retirement savings, purchasing real estate or buying a car. Mr. A has stocks in a reputed company that earned him high dividends and bonus shares over time. He could pay for his Europe trip through the funds he got from selling these shares. Z used the money from selling his stocks towards the down payment of his vacation home! Now all he has to manage from his salary is his EMI.
Source :Rediff business
Thursday, 25 November 2010
What is Carry Trade In Currency?
It is a strategy whereby an investor sells a certain currency with a relatively low interest rate and uses the receipts to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.
For example, in a rupee-carry trade, a trader borrows $10 million from an American bank, converts the funds into Indian rupees and buys a bond for the equivalent amount. Let’s assume that the bond pays 8% and the American interest rate is set at 2%. The trader stands to make a profit of 6% as long as the exchange rate between the countries do not change. Many professional traders use this trade because the gains can become very large, if leveraged.
The big risk in a carry trade is the uncertainty of exchange rates. These transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately.
Source : ET
Subscribe to:
Posts (Atom)