Investment Valuation in India

The Reserve Bank of India has announced that starting it will withdraw all notes that were printed before 2005. Starting 1 st April 2014, the all banks will exchange old notes with new ones. One has to present all old notes to banks and they will be provided with new ones. Starting July 2014, anyone exchanging more than 10 notes of Rs 500 or Rs 1000 will have to present their ID proof. How to identify which notes were printed before 2005? All notes printed before 2005 did not have the year of printing on them. Starting 2005, all notes have the year printed on the back side at the bottom. The move is aimed at reducing fake notes from circulation. However, it was clarified by RBI Governor R Rajan that the pre-2005 notes will continue to be legal tender. This has created further confusion among people as to whether they should actually replace the notes or not. Impact of Currency Recall The currency recall announcement has a huge impact as this would cap...

The last few days has seen some significant policy announcements by the government the absence of which, for long, was coined as the government’s policy paralysis. - Diesel prices have been increased by close to 12% - Allowed 51 per cent foreign investment in multi-brand retail (remember, this was allowed last year as well, but could not be implemented due to political opposition) - Allowed 49 per cent investment by foreign airlines in aviation - Raised the FDI cap in broadcasting from 49 per cent to 74 per cent - Capped subsidised LPG cylinders by a household to 6 cylinders in a year, more cylinders if required will have to be purchased at market rate that is approximately Rs 750. While most of the above are being seen as extremely positive moves in order to avoid a credit rating cut that’s being threatened by rating agencies, these cannot be termed as big-ticket reforms. A lot more needs to be done in order to bring the economy back on the growth track. Perhaps, it is th...

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...

The announcement of poverty line for India pegged at Rs 32 per day in urban areas and Rs 26 for rural areas based on June 2011’s price index had gathered much attention and criticism itself. The planning commission has taken another bold step to revise it further downward to Rs 29 for urban areas and Rs 22 for rural areas on March 19.  The Planning Commission has cited that there is a decline in poverty level from 37.2 percent in 2004-05 to 29.8 percent in 2009-10. Even the absolute number of poor in the country has fallen. While the critics see this as an excuse from the government – already struggling to meet its expenditures - to avoid serving the poor by providing subsidies. But there is an economic sense in what the planning commission or the government seems to be doing. Let’s assume that the entire daily income of the country is Rs 100 and is earned by 5 people as follows: A: Rs 50 B: Rs 20 C: Rs 15 D: Rs 10 E: Rs 5 The government has limi...

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 ...

This is a link to a post that I read on one of the blogs..... Most Americans still appear to be operating under the delusion that the "recession" will soon pass and that things will get back to "normal" very soon. Unfortunately, that is not anywhere close to the truth. What we are now witnessing are the early stages of the complete and total breakdown of the U.S. economic system. ...... Read more

After a long global political battle, China’s decision to open (appreciate) its currency have come as a breather for metal prices, but the long-term impact of Yuan appreciation on metals prices may not be as simple as it looks. China’s purchasing power in the international markets will increase along with the Yuan’s appreciation. China’s demand for commodities is driven by multiple factors such as real demand from manufacturers, construction industry and stockpiling besides speculative demand from traders. However alignment to bulk orders may not encourage buying based on real demand due to appreciation. China being the world’s largest importer of metals and ores, appreciation of Yuan will lower the import price of metals for Chinese importers and manufacturers. This will potentially help push up international prices of these commodities (including in India). This is a positive development for Indian metal and ore producers. However, purchases are eventually determined by demand...

As a continuation to my previous post on reducing carbon footprint, I hope there have been some viewers to the post and at least some who are doing their bit in reducing carbon footprint. CYCLE to WORK This is yet another way of reducing carbon foot print. And for those who don't give a damn to reducing carbon footprint, this will certainly save you money, here are reasons why you should cycle to work. It does not cost you fuel, it is eco-friendly It improves health and you dont even have to spend multiple grands at the Gym. Bicycling is no more a "middle class" or "lower class" trait. And anyways, to protect your "image", you can always buy a high end bicycle. It portrays you as a responsible citizen, improving social image. You can proudly say you are doing this to save environment. So just go ahead, save money, save environment, improve health and reduce carbon footprint.

The reason why China is fast becoming a preferred investment destination and is a toigh competitor for India are not as obvious as it seems. Economic giant US is also not as dominating for China as it is for most other nations in the world. The fact that Chinese goods are sold at a low price across the world is not only because China has been able to able to leverage on the scale and cheap labour backed by solid manufacturing infrastructure. The reasons are more than what meets the eye. The fact is that Chinese yuan is kept at an artificially low level, giving it an unfair advantage in selling its exports. Based on this exchange rate, the US goods looks artificially inflated in price while Chinese goods look artificially deflated in price. US exports to China in 2008 were $69.7 billion (exports to India were $25.7 bn) while the Imports were $337.8 billion (Imports from India were $17.682 bn). China has not been letting its currency appreciate in a free market as it feels that...

The celebrations of free ATM transactions from any bank in India was not even over that the RBI accepted the Indian Banks Association (IBA) proposal to re-introduce transaction charges for customers on the use of other banks’ ATM. IBA has proposed to levy a transaction fee of Rs. 20 per transaction for using another bank's ATM more than five times a month. Also the Reserve Bank of India has said that not more than Rs 10,000 can be withdrawn each time they are used. It will be optional on the part of the banks to levy this charge on customers. IBA has not made it mandatory but left it to the banks' discretion. Since the banks will recover the transaction costs it would have to pay to the bank providing the ATM services, it has less to lose. Once again, it’s the customers who lose. ATMs have become an important channel for banking transactions, particularly for cash withdrawal and account balance enquiry and also funds transfer, bill payments and cell phone recharge facilities. T...

The Budget Glossary. On the way to the Budget which is expected to one of the biggest in Indian History, let us take a look at what some of the terms and jargons means. BALANCE SHEET - The lines and figures that reveal the receipts and expenditure of the year ANNUAL FINANCIAL STATEMENT This is the last word on the state’s receipts and expenditure for the financial year, presented to the Parliament by the government. Divided into three parts — Consolidated Fund, Contingency Fund and Public Account — it has a statement of receipts and expenditure of each. Expenditure from the Consolidated Fund and Contingency Fund requires the mandatory nod of the Parliament. CONSOLIDATED FUND - The government’s lifeline: it is a consortium of all revenues, money borrowed and receipts from loans it has given. All state expenditure is made from this fund. CONTINGENCY FUND - As the name suggests, any urgent or unforeseen expenditure is met from this Rs 500-crore fund, which is at the disposal of ...

How-are IT returns selected for Scrutiny Procedure for selection of cases for 'Scrutiny' for non-corporate assessees In super cession of earlier instructions on the above subject the Board hereby lays down the following procedure for selection of returns / cases of *Non-Corporate Assessees* for scrutiny during the financial year i.e. 2007-08 . 2. The following categories of cases shall be compulsorily scrutinized; - i) All assessment pertaining to search and seizure cases. ii) All assessment pertaining to surveys conducted u/s 133A of the Income tax Act. iii) [1]All returns where deduction claimed under Chapter VIA of the Income tax Act is Rs.25 lakhs or above in stations other than the cities on computer network. iv) All returns, including those of non-residents, where refund claimed is Rs.5 lakhs or above in stations other than the cities on computer network. v) (a) All cases in which the CIT (Appeals) or ITAT has confirmed an addition / disallowance of Rs.5 lakhs or above o...

“Sail with the tide” is the apt phrase for those who talk about the economy, markets you name it. Except for those who did not invest in India, every one talked about the fundamentals and the growth rate projections for India’s GDP went as high as 15% by some eminent global analysts. Now when the markets have come down, every one has become an astrologer in retrospect. Every one is saying that India was overvalued and this downfall was obvious et al. India’s GDP growth accelerated to an average of 9.3% during the three years ending March 2008 compared with an average of 6.6% and 6.0% in the preceding three and five years, respectively. “The most important driver for this acceleration in growth above potential was the sharp rise in capital inflows” – believes Chetan Ahya, Managing Director, Morgan Stanley. Capital inflows have risen dramatically over the past five years. India received an average of $10 billion per annum between 2000 and 2002. During 2003-2005, capital inflows jumped ...

History has already been made by Barack Obama becoming President of the United States. The man of mixed ethnicity is considered to be the utterly representative of the 21st century America. He is expected to reverse (for the better, of course) the image of America abroad and refresh the spirits back home. But we all saw that this was amongst the most sought after elections in the US. The passion of the elections in the US is understood, but why are we all here in India too were so curious about the elections in the US. One would say that we have become more globalised. Sure we have. But I guess there’s more to it. Our economy has developed deeper linkages with the US around increased trade, currency and investment. India Inc is one of the largest employers in the US as was pointed out in a recent FICCI report, on the back of recent acquisitions and investments by a large number of Indian companies like Wockhardt, TCS, etc. All this has significantly increased the risks and impacts of...

We all usually get a lot of mails (junk ones), not all of them are junk though. I got a forwarded mail from a friend.... I found it interesting.. so here it is. If you could read patiently and understand, its a great knowledge ! 　 Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around. 　 There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar. B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar. * The net asset of the country now = 3 dollars. 　 Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars. *A has a loan to C of...

Its Global Liquidity Crisis ! We all have been listening to this for a while now and are adversely affected by this. the global markets are down and money is flowing out of the emerging economies. I am being asked a very valid question time and again. If money is flowing out of (say) India, it must be going somewhere. For every outflow of money, there must be a corresponding inflow somewhere. But that's not the case. the whole world is facing this liquidity crisis. A gentleman (he invested a lot in the equities and has lost millions due to fall in the market; "the FIs are selling") came up with an answer that the FIs are sitting on cash. OK! lets take this for a while. But are they hold currency notes. Nopes. This money shud then be deposited in the bank accounts. But again this liquidity crisis is most faced by banks. the banks dont have money to lend, the interest rates are shooting up. So is it that the banks are holding money with themselves are not willing to lend. N...

The statements issued by the Prime Minister, Finance Minister, RBI Chief and Bank chairmen have at least some truth in it. This is seconded by the recent Crisil report. But again, there are two sides of a coin. The report says that the global crisis is not responsible for the challenges faced by the Indian Banks; but at the same time, there are a lot of internal factors that are responsible for the same. Contrary to the stance taken by authorities, ratings major Crisil has said domestic, not global factors are responsible for the current challenges facing the banking sector. In a statement issued on Tuesday, the ratings agency has said: “ Crisil believes that the Indian banking system is relatively insulated from factors leading to the turmoil in the global banking industry .” The statement goes on to add that the recent tight liquidity in the Indian market is also qualitatively different from the global liquidity crunch, which was caused by a crisis of confidence in banks lending t...

The US Government, through the US Treasury and Federal Reserve, stepped in to save the Fannie Mae and Freddie Mac; refused to do anything about Lehman Brothers, let Bank of America help Merrill Lynch save itself and threw AIG a lifeline. Why this partiality? There’s reason ! Lets see why! The Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC) all are Government Sponsored Entities (GSEs) and they are known by the names Ginnie Mae, Fannie Mae, and Freddie Mac. Each purchases mortgages from lenders to provide funds for mortgage loans. The agencies issue three types of mortgage-backed securities: mortgage Pass-through securities and collateralized mortgage obligations. and stripped mortgage-backed-securities. This process of combining many similar debt obligations as the collateral for issuing securities is called securitization. The primary reason for mortgage securitization is to incr...

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...