Investment Valuation in India

Interim Budget 2014 Highlights Fiscal Deficit for 2013-14 at 4.6 percent of GDP Revenue Deficit for 2013-14 at 3.3 percent The current account deficit (CAD) projected to be at USD 45 billion in 2013-14 down from USD 88 billion in 2012-13. WPI inflation down to 5.05 percent and core inflation down to 3.0 percent in January 2014. Food inflation down to 6.2 percent from a high of 13.8 percent GDP growth Q3 and Q4 of FY 14 expected at 5.2 percent and that for FY 2013-14 estimated at 4.9 percent Through the Direct Benefit Transfer (DBT) Scheme, a total of Rs 628 crore (54,20,114 transactions) has been transferred directly to the beneficiaries till 31st January 2014 under 27 Schemes. Excise Duty Item Description Old Rate (Excise) New Rate (Excise) Notes Small Cars, Motorcycle, Scooters and commercial vehicles 12% 8% Applicable till 30-Jun-14 SUVs 30% 24% Applic...

India has been able to withstand some of the biggest global financial meltdowns in recent times. This was attributed to a very strong regulatory environment (particular credits to the Reserve bank of India) and the Great Indian Consumption story.  These two factors have led to the world expecting a lot from us. The last couple of years have shown that we have under delivered, badly. The global investors are shying away from investing in India given the government indifference to the industry requirements.  Who's responsible for the mess around? The opposition succeeding in keeping the government's attention away from more core issues by highlighting one issue or the other (read 2G and then Coalgate). They worsened this themselves by trying to override the Supreme Court's judgment on Vodafone case. Unnecessary!  Consequently, the world has been able to blame the government for policy paralysis and lack of judiciary relevance. Only the government is responsible for...

India is in a rising interest rate environment. We have already seen the RBI raising interest rates five times since March 2010. Last week, in its policy review, the central bank left rates unchanged, merely reducing the SLR to 24% from 25%. However, this is certainly not the end of the story. With the inflation showing no signs of easing in the medium term, raising interest rates is one of the most important tools in the hands of the government/central bank. Rising interest rates are generally not taken well by the investors at large. Firstly because it directly hurts the pockets of the individuals. The interest rates are increased to suck money out of the system and to curb the inflation. As rates increase, banks pass on the increase in rates to its customers and consequently home loans become more expensive. People having loans have less disposable income as their monthly payments increase. Let's see how this impacts the businesses. Companies need funds to operate and ...

The US Economy is weakening, why is Rupee depreciating (as compared to dollar) then? The rupee slumped to a five-year low of 47.10 in spite of the slowdown in the US Economy. Ideally when a country is in the slowdown the currency of that country should depreciate. Fine that India is slowing down too but is still growing at a rate more than the US. But why is the Rupee depreciating then. There is heavy dollar-demand from oil refiners and importers. Sentiment for the local currency was further dampened by losses on the stock markets on Monday (29-Sep-08). But the central bank intervened by selling up to $1 billion which helped prop up the rupee. We have the inflation climbing the ladder very fast with remote signs of coming down. The crude oil prices are extremely volatile. The GDP forecast is also trimmed every now and then. The current account deficit is widening. With not many positives in sight, traders see the rupee trading in the 47-per dollar range for the next few days. At the cu...

Impact of Inflation on Financial Statements Fixed Assets under historical Cost accounting – Since the fixed assets are valued at historical cost (in most countries), the assets are stated at a much lower figure than their current replacement costs. This makes the company vulnerable to takeover bids and leads to lower valuations for the shareholders. Depreciation – Since the assets are undervalued, consequently the depreciation on such assets are also undervalued. This leads to distortions in the make or buy decisions of the assets. This consequently overstates the profit of the enterprise. In case of inflation, the cost of raw materials and goods purchased for re-sale are rising. Under the cost concept only cost of purchase is taken to the Income Statement. Generally, in case of Inflation, the fair value is greater than the cost and this difference between the cost and the fair value of such goods is also taken to the Income Statement as Holding Gains. Consequently the profit is agai...

Well I know thats a similar title as the previous post.... but just didnt want the previous one to get lengthier. We have a come a long way from 130's to 13000's from the 80's till date. That's a 1300 times increase in 20 years. Thats a 26% CAGR in-spite of the fall from 20,873 (8th jan'08) to 13,635 (18th July'08). Mr Amitabh Chakraborty 's (President, Equities, Religare Securities; CFA; FRM) views on the markets are as follows (extracts): Limited downside from now. Sensex to be in the range of 10500 to 14500 this year There is a slow down of growth but not de-growth Estimate sales grwoth is 29% while estimated PAT growth is 18% Capital Goods sector looks good . the Banks look sluggish but may still come out surprisingly well. RBI should ease the rates by the year end. Oil should trade in the range of $100-110 per barrel. FED should hike rates by december leading to money flow from commodities to Equities. Political condition should be OK and the Government...

Hi guys, This saturday (19th July '08), I attended the All India Conference on Capital markets organised by the ICAI at the Taj Bengal, Kolkata where dignatories of the Capital markets arrived and presentade their views on the markets and the road ahead. I was pleasantly surprised to note that almost all the speakers (trust me, they are the big shots in the industry) are positive on the marekets ahead. I am keen to highlight some of the points Mr Nilesh Shah (Deputy Managing Director, ICICI Prudential AMC, managing close to US$14bn, a CA Gold Medalist and a Cost accountant) came up wth. What went wrong with the markets? High Oil Price (India has the highest Oil import to GDP ratio) Higher Trade Deficit (weaker Rupee) Higher Inflation (backed by higher subsidy burden) High Fiscal Deficit High Interest rate Slowing Growth Traders are short and investors are sitting on cash Rising oil prices (India currently pays $50bn for oil annually) Clearly nothing has been going good for the ec...

We all know and are worried about the weakening Rupee against Dollar. But RBI may let Rupee weaken against Dollar even if its inflationary in the short term. Besides, weakening Rupee is expected to reduce volatility on the external front. India is witnessing a High Current Account Deficit. this means that on a trade weight basis, there is a downward pressure on Rupee. Some (including the new Govt supporter the Samajwadi party) are asking the Govt to appreciate Rupee using Forex Reserves. But if Rupee is kept artificially high, it will widen the deficit by encouraging imports although it will make oil imports cheaper. This would lead to instability in the economy. Globally, economies are expected to follow tight monetary policy and the there are still signs of the US getting into a recession. This has led to a great uncertainty on the flows of funds globally. China was expected to appreciate Yuan and this led to hot flows of money in China. Consequently, this has led to instability in C...

Inflation is a rise in general level of prices of goods and services over time . Although "inflation" is sometimes used to refer to a rise in the prices of a specific set of goods or services, a rise in prices of one set (such as food) without a rise in others (such as wages) is not included in the original meaning of the word. Inflation can be thought of as a decrease in the value of the unit of currency . It is measured as the percentage rate of change of a price index. Annual Inflation Rate = (Current Price Level - Year ago Price level) / Year Ago Price level. It isn't that easy to calculate it though as the inputs to the "Price Level" is huge and is generally calculated using piles of data by government and specialised agencies. Types and Causes of Inflation: Demand Pull Inflation is caused by an increase in aggregate demand. This results from an increase in money supply and increased government spending i.e. Government purchases. Cost Push Inflation is ...