India - The economy - 2013 Recap

2013 was a year of turbulence in India. The business newspapers in India had plethora of topics to harp on as the year was full of events. From the large number of promises of reforming the Indian public sector to the union budget, from current account deficit to measures to curb gold imports, from crashes in the mid-cap sector stocks to scams, from greater youth empowerment to US FED quantitative easing taper, there were large number of news which grabbed the headlines and affected the overall investor and business sentiment. Lets look through the major ones here:


US Fed QE and its taper -
The most important topic which has been affecting the entire world economics is the process of QE and its taper. The Fed has been virtually pushing loads of money into the economy every month. This money has flown into Indian bonds and equity markets too. The fear of taper had caused this money to be pulled out from India leading to severe fall in Indian equities, currency and bonds too. With US doing better, the Fed has finally announced the taper though the rates should remain low for an extended period. This would stop the supply side of money though with improvement in overall economic conditions, the business climate could get better. But with the closure of the tap, India has to do fundamentally better now to attract investments and the flow of easy money into the economy will be much lesser. If there is no improvement in economic conditions, 2014 will be even more tough than 2013 for Indian business and equities.

Union Budget -
With the government of India maintaining its record of doing nothing to improve overall economic outlook of the country and ensuring that businesses keep struggling with higher taxation and more curbs in the name of improving fiscal deficit, India Inc was pushed back into troubled waters. The combination of one of the most educated finance minister and prime minister failed to create an impact as they came up with another disappointing budget which was to say the least was a reflection of how poor the governance has been in the past 10 years in the country. Business in 2013 have felt the problems of this and hope that things improve in 2014.

CAD and Rating agencies-
With most rating agencies across the world from fitch to moody's to S&P having a close look at the Indian economic conditions and keeping their eyes open to the possibility of downgrading India to a junk rating, their views and reviews have been a part of the headlines. Though most of them have not downgraded India, they have maintained their negative outlook meaning that the possibility of downgrade still remains in 2014 which could push India into a catastrophe of global economic turmoil.

Currency - USD INR crossing 60
With the current account deficit and trade deficit increasing continuously combined with outflow of capital because of QE tapering, Indian currency ended up being among the 3 worst performers in the global currency space. With its brother countries in BRICS viz South Africa and Brazil doing equally bad, there was a little bit of saving grace for the finance minister to say that every problem in Indian macro-economics is caused by global factors. The government failed to acknowledge that the local factors were equally bad with exports suffering despite lower currency value. The Indian currency saw a new low of approximately 68 levels v/s the dollar and has settled around 62 since the recovery. 2014 poses a huge challenge considering that there could be political turmoil combined with QE taper.

Gold curbs-
The finance minister went all guns blazing to curb gold imports. He has been somehow made to believe that the currency crisis in India is because of the gold imports that we have. India is among the largest consumer of gold and the largest part of the import bill consists of gold. However, the curbs have not been able to put any significant improvement to Indian currency though gold imports have gone down very significantly. As usual, the government has not been able to address the main concern which is the growing sentiment that the businesses in India are in trouble, exports are declining, receding foreign investments and growing discontent of International investors for returns generated on investing in business in India.


GDP growth and downward revisions-
With the GDP growth rate on continuous downward trajectory and printing less than 5% growth rate, India has seen a new low in the recent past with regards to its pace of GDP expansion. Industrial activity has declined miserably though agriculture has shown much better than expected performance. Policy makers have continuously been expecting a pick-up but have not been able to see any signs of it as yet. There is fair bit of optimism that the worst has passed by though things have not seen too much of improvement as yet. With US and Europe back to expanding at a good pace, India should be able to start growing back at a faster pace.

Inflation-
This has been the most significant header on the news lines and has kept the RBI governor on his toes over the past 1 year. With inflation well above the RBI target for the entire year and printing near 10% levels for the year, the average consumer has felt the brunt of the price rise. Most households in India have been affected by it and are rather severely hit by them. More significant was that the price rise of onion in India not only made headlines in Indian news channels but got coverage on US CNBC too! The RBI has been taking steps to control the demand side though the supply side which is generally the prerogative of the government has not been addressed and prices have stayed stubbornly high.

Index of Industrial production/ PMI-
The PMIs and IIP numbers have more or less disappointed though the last print has been fairly optimistic which gives us a feeling that greener times may be seen by Indian business in 2014. With HSBC raising its expectation for growth in India and HSBC PMI showing some pick-up, there is some light at the end of the tunnel for Indian businesses.

Midcap crashes-
20% crash in price of Indian stocks have become common stories in India. With stocks like Infosys crashing 20% in a day, questions have been raised on the liquidity and depth of the stock market in India. Many mid-cap stocks have seen more than 50% erosion within 3 days which has severely dented investor confidence in India. Well known companies like Apollo tyres, Titan, Infosys, Wockhardt, Jindal steel etc have all seen such significant declines at-least a few times this year.

Political factors-
2013 showed a few landmark shifts in the Indian political scenario. With corruption and inflation being major concerns for the common man in India, there has been strong public outrage over the current government in India and has led to them getting uprooted in local assembly elections. New parties have come to power and 2014 will see the prime ministerial elections. There is a possibility of congress going out of power and a new party and new prime minister coming to power.


Reform measures and failures-
The finance minister promised huge number of reforms which not only made the business optimistic but also saw the congress parting away some of its allies. Though some of them like partial de-regulation of diesel prices did happen, the business community was left wanting for more. Reforms have been slow and the process of implementation has been slower leading to little benefit to Indian business climate.


Food security bill and other populist measures-
This was another landmark announcement by the government of India to ensure that food will be provided to every Indian at almost zero prices. Though this was good in terms of ensuring that no Indian stays without food, very few things have changed. The poverty still remains and there have been reports on deaths due to starvation in the country. This bill has been publicly criticized by most economists in India saying that it will affect the government balance sheet severely and raises the possibility of higher taxes. Also social activists and philosophers have been criticizing it saying that this reduces the efficiency of work-force and would lead to more and more people moving away from working as food is freely available. All in all, the only motive seen behind it by most people is to ensure that congress is able to garner more votes in 2014 due to it at the expense of Indian economy and Indian tax-payers.

RBI and major changes-
RBI saw the change of its head this year. It saw the replacement of one of its best governor's by another great economist. Mr. subbarao, the outgoing governor had won kudos from most global economist for his handling of the central bank of India. He was partially restricted in pursuing his plans to support the economy as most of the times, he was fighting the ever increasing inflation situation in the country. He still managed to do exceedingly well considering the constrained environment around him. The new governor of RBI, Mr. Raghuram Rajan has been one of the most respected economists not just in India but across the world. There is widespread optimism that he will be able to pull out India from the current mess of high inflation and low GDP combined with increasing deficits and ever depreciating currency value.

To conclude, 2013 has been one of the toughest year for Indian businesses and investors though there is some light at the end of the road and with prime ministerial elections in 2014 combined with QE taper, there will be huge number of challenges and opportunities for Indian business in 2014.

The Elite 1 Crore Club of India

The Indian Finance Minister Mr. Chidambaram mentioned in the budget speech of 2013-2014 that India has an elite 1 crore plus club - The club of people earning more than a crore rupees a year and the number is somewhere around 40000.

This comes to me as a shock and a disappointment. It is depressingly small considering that it includes every one from CEO of companies to Bollywood actors and producers, to Sports persons (specifically cricketers) to business tycoons. To put things into perspective, it means that less than 0.004% of our population. That means in a population of 10000, there are only 4!!


I don't know, if we should call this club as elite or call this club as the lucky ones as this ratio shows that you need to be more than elite to be a part of this club. You got to be lucky!! This ratio is worse than the selection ratio of IIM, the most competitive exam in the world in terms of selection which selects 1 in 100 or 100 in 10000.

With various business magazines and newspapers showing list of graduates out of IIT and IIM getting more than a crore salary increasing every year, it is not surprising for us to realize that this graduates are paid such high salaries abroad and not in India either because companies feel that the talent in India is good but the work here doesn't deserve that high compensation or that the work done in India is too meager compared to  their caliber and capability. Either ways, it is highly depressing to see such a bad state of Indian economy with more 60 years after Independence.

To add to this, consider that it is difficult to buy a good house in Mumbai for less than a crore. Somehow, the income disparity in the country is making survival tougher over the years.

Comparing it with NRIs, the starting salary of an Indian engineer who goes to USA to pursue an MS and do a job is around 100000 USD amounting to 60 Lakh rupees and generally they reach the 1 crore figure by 5-8 years. Engineers working in India since 30 years cannot boast of even half of this compensation! An MBBS who pursues a post graduate in USA generally starts with a salary of 150000 USD (a crore approx) if pursued in a decently good field whereas there are MD doctors in India who earn a few lakh rupees if doing a job in India.

To look at the top 20 countries with highest percentage of population being millionaires, please check this link
http://images.businessweek.com/slideshows/20110602/twenty-countries-with-the-highest-proportion-of-millionaires#slide20

Life is what separates us; It's fate is what combines us all

The other day, I was watching a movie where the actor and actress try various modes of committing suicide and fail. The protagonists try various methods and experience pain and suffering while failing to take their lives. Those scenes inspired me to the divine revelation that we are all mortal.

We generally are so engrossed in our lives that we tend to forget that sooner or later, it is all going to end. Not that the end is inevitable and most of us know it, but there are very few of us who have actually been able to allow this feeling to sink in our hearts. We all believe that each one of us have a separate life and tend to forget that the fate of it, our death, is the same for every living being. This could lead to a spiritual discussion which is not the actual intent of this article. I did some googling on various ways to die and the one's which are the best, least painful, most inspirational, most painful, worst etc ways to die and was surprised to find lists stretching to 1000s of ways of dying!!! There is a proverb in my mother tongue which says that pray to God that you live a happy life and die easily. We tend to look only at first part of this and fail to heed the second part until the realization of our mortality dawns on us by some life terminating disease or a disastrous accident.

So, after doing various research and going through various polls, here is the list of 5 least painful ones and 5 worst ways to die. Do bear in mind that this list has been combined by the opinions of living people only and none of the opinions of people who have actually experienced death by these means have been considered as they were not available for opinion..!

5 Best ways to die:
a. Die In sleep or Die of old age as it is better known
b. Die of cardiac arrest.
c. Die due to overdose of carbon monoxide
d. Die due to sudden hit of bullet on the head without knowing
e. Lethal injection.

However, its been observed that most people who have led their lives happily and are satisfied die more peacefully than others. So live life happily and hope that you end up dying in one of the above 5 ways.. :P

Investing - How, when, why?

Investments at time can be perplexing considering the number of investment avenues around and lack of proper unbiased guidance. So how should I plan my investments? Generally, though the answer to this question depends on one’s financial goals and current financial state, here is the list of most common investment avenues. I have divided them into primary, secondary and tertiary. The order of precedence is as it was in school viz primary are the first step, followed by secondary and finally tertiary.

Along with every investment vehicle, I have also mentioned the risk profile - Very low meaning then there is very little or negligible risk of losing the capital, whereas very high has high chance of loss of invested capital and is not meant to be for people who are putting their savings into the investment vehicle. Very high risk investments are only for those who have a specific investment goal and do not mind losing a part of their capital for achieving this capital. It is for ones who have high disposable incomes.

Primary

a. PPF - Public provident fund - It has a maximum limit of 1 lakh per year and it gives around 9 percent after tax return which is really good. I think it is the safest place to invest but the investment horizon has to be atleast 10 years. This is a must do for any savings plan.

Risk Profile – Very Low

Return – Medium but steady – Really high considering that there is minimum risk

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

b. Debt funds - They are little less risky than equity funds though they generate decent returns - Approx 10% per annum. You have to invest in it for a specific period to avoid short term capital gains tax. This is again a low risk investment and returns are also decent.

Risk Profile – Low

Return – Medium

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

c. Bank fixed deposits – They are not very lucrative if you are in high income bracket. The only advantage is that the invested sum is safe and there is little or almost zero chance of losing the invested capital. But this can be avoided if you are in high income brackets, as the returns on this are taxable and an effective tax rate of 30% makes them highly avoidable.

Risk Profile – Very Low

Return – Medium to Low depending on your tax bracket

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

d. Government bonds – One can invest in various government bonds and bonds issued by issued by public companies. The ticket size can vary from a few thousands to a few lakhs. They are really good as they are risk free returns and give you returns a bit better than a FD

Risk Profile – Very Low

Return – Medium

Investment goal - Safe investment and steady income and retirement planning

Investment reason – Saving and being able to secure future and manage inflation

e. Insurance – One can look for a savings plan or a term assurance based on ones requirements. If you have invested in most of the above mentioned asset classes, then a term assurance makes more sense as it covers life risk and doesn’t give any return on investment. The benefit is that the life cover comes at a much lower premium. On the other hand, if one hasn’t invested much in the above plans, then one can look for a savings plan which gives benefits of both returns on investment as well as life cover.

Risk Profile –Low

Return – Medium

Investment goal – Safeguarding from mortality risk and getting a life cover

Investment reason – Not a lot of benefit in terms of ROI but mainly for life cover

Secondary

f. Gold – Most people invest in gold believing that gold prices always go up. But, I would say that if you have such a view, you are more likely to be given a rude shock. The reason for investing in gold should rather be the one which is derived from the traditional wisdom of our ancestors. Gold is a very liquid asset and is an investment meant to be liquidated during bad times. Hence, when you invest in gold, you should rather assume it as a consumption which may or may not give you returns but would definitely be a strong base to fall upon during bad times. I suggest it should be atleast 5% of your annual savings.

Risk Profile –Medium

Return – Fluctuating – Can be very high to negative – Long term average is medium to high

Investment goal – Protecting against major macro-economic risks and a physical asset which can be used during volatile times

Investment reason – Physical asset which has value despite depreciation of currency/ equity and is highly liquid

g. Company bonds – One can invest in various bonds and bonds issued by issued by corporate. Ensure that the credit rating of the bond is good and the company has a good track record. Don’t just look into the return on investment. The ticket size is generally high like a few lakh of rupees. They are really good as they are risk free returns and give you returns a bit better than a FD.

Risk Profile –Medium

Return – High and steady if the company is properly selected

Investment goal – Generating steady return on investments and having a fixed annual income

Investment reason – Generally debt is safer to invest than equity and hence should be a part of one’s profile for times which can be volatile.

h. Equity funds - These are mutual funds for equity schemes. These are high risk , high return places. You should not allocate more than 40% - 70% of your capital in these considering your risk profile. Also, most of your extra income should be put in this if you do not have a very strong dependency on that money and would not need it in case of emergencies. You should always do an SIP to invest here. Minimum investment period is 1 year to avoid capital gain tax but I suggest atleast 5 years vision. One should seek help of a qualified investment planner to identify the right places to invest as there are 100s of schemes and each one has a different risk profile and return on investment.

Risk Profile –Medium

Return – Medium to High in the long run

Investment goal – Allocating funds to achieve higher esteem goals like buying a house or making an expensive purchase which may or may not materialise

Investment reason – Gives a good return on investment but one should have the capacity to hold on to them during downturns too. Else, you will end up losing money here.

i. Infrastructure bonds - Besides the 1 lakh income tax exemption limits, there is another 20000 limit for these bonds where you can invest. Here the income invested is exempt of taxes upto 20k and is a good place to invest as the returns are more or less fixed around 8% after tax

Risk Profile –Low

Return – Medium

Investment goal – Tax exemption and decent return

Investment reason – Saving tax and investing

Tertiary

j. Real Estate

One should invest in these after having invested in the primary and secondary sources. The reason behind this being that the ticket size is huge and less liquidity during turbulent times. There is a growing sentiment that real estate prices keep rising. USA has already experienced a rude shock when the prices changed their direction and similar things can happen here so one should invest in this industry only if one has extra income and can hold onto the asset during turbulent times or has the capacity to absorb the risk.

Risk Profile –Medium

Return – Very High

Investment goal – Creating physical asset, Generating rental income, Using it as collateral or re-investments.

Investment reason – High return on investment, creating high returns and creating a physical asset

k. Stocks and shares

Over a period, one should try and pick up quality stocks for the long term at good prices. Few of the wealthiest people have done it so from the stock market. The ability to pick the right stocks by being able to devote quality time to research and understanding and doing fundamental analysis is a must before you venture into it.

Risk Profile –Medium

Return – High

Investment goal – Creating wealth, Retirement planning

Investment reason – High return on investment

l. Strategies on stock markets

There are various strategies on the stock markets floated by NBFCs which can generate very high return. The investor has to be however aware of the rationale of investment and the risks before investing in them. It is meant for people who have strong background into financial investments or who have proper investment guidance. Generally the ticket size is also large – Minimum of 20 Lakhs or so.

Risk Profile –High

Return – High

Investment goal – Wealth creation

Investment reason – High medium term returns after proper risk analysis and mitigation