Friday, September 5, 2014

Your teacher’s lessons will help you for life!!

 On Teacher’s Day while we remember our teachers and the countless lessons they taught us, the first thing that they might have inculcated in us, apart from their endless efforts to make us understand algebra and Shakespeare - is discipline. May it be reaching class way before the last bell rings, or doing our homework regularly to even polishing ourshoes on a daily basis, discipline in small ways has made a big difference in shaping the kind of people we are. We need to ensure that we inculcate that same discipline when it comes to our investment styles!

Discipline is the key to sound and healthy investments. Remember when you, as a child, used a piggy bank to save money? The coins you dropped into the piggy bank were miniscule in value, but they teach an important lesson in financial discipline - Save Small, Save Regularly. Today, this very approach applies to your financial wellbeing. With volatile markets and high spending habits, it is advisable to make small investments regularly and systematically rather than a large investment all at once. When you invest regularly & systematically, you reap the benefit of compounding (as explained in our previous article).

For example, if you plan to save Rs 2,000 per month for 10 years. Your total saved amount thus would be = Rs. 2, 40,000 per year. Now if you assume a fixed rate of return of 12% per annum, after 10 years your investment stand to Rs. 4,60,077. That is a difference of Rs. - 2,20,077! How did it amount to that? Simple, your savings used the power of compounding to transform into wealth. Do you still need an incentive to discipline your savings?

Like your teacher used to guide you, all you need is a guide, someone to handhold you and help you learn and manage your investments. Since most of us do not have the time or the expertise to understand markets and where should one invest, it is always better to invest in Mutual Funds.
Always invest in time, if you are planning to buy a car some years later, don’t wait for that salary hike to finance the car, start investing in Mutual Funds through SIP and build your corpus. Find out what your SIP will yield in different time frames. Do your homework to figure out which Fund House best suits your investment style and risk appetite, is the fund house going with the trend? Or is it unafraid to swim against the tide and take investment calls, which may look strange at that time but in the long run, are beneficial for your portfolio.

Wednesday, July 16, 2014

5 common investing mistakes to avoid during bull markets

With the BJP government coming to power with a clear majority, many market experts believe that India is on the verge of a long term bull market. Therefore making money in a bull market is as easy as taking candy from a baby right? Time to give that concept a second thought… many times investors fail to get the returns they deserve because they fall prey to some common mistakes while investing in bull markets.


Here are 5 common equity investing mistakes to avoid during bull markets:



1. Trying to time the markets:

Investors generally face long odds in trying to time the ups and downs of the market. Most of them are not able to spot a bull market when it is taking off. When the market runs up significantly, they realize that they have missed the bus. Timing the market is difficult and requires financial expertise. Even the so called market experts may not get their timing right. We believe investments should be goal based, not timing based. Always set your investment goals and invest for the long term. Market timings do not matter if you have a long time horizon.


2. Ignoring asset allocation:

In bull markets hot stocks are always in news. Investors get enticed to buy these stocks and invest all their money in them without paying attention to the golden rule of investment i.e. asset allocation. Asset allocation is the process of diversifying investments among several asset classes i.e. equity, debt and gold to reduce investment risk. Its objective is to lower investment risk by reducing over-reliance on one asset class. But most investors however do not realize that portfolio return is directly attributable to asset allocation. Therefore, as an investor, you need to make sure that you properly allocate your hard earned money in different asset classes in order to fulfill your investment objective.


3. Following sentiments, not fundamentals:

In a bull market, investors tend to ignore the fundamentals and focus more on market sentiments. By fundamentals we mean the business of the company, its management and long term goals, the environment in which it operates and its investment process. Short-term market movements are driven by sentiments but long-term returns by fundamentals. Therefore, use fundamentals to make investment decisions and ignore the market noise.


4. Redeeming in market rallies – the other end of the spectrum:

In a bull market, stock markets rise sharply. An expected reaction to this might be to redeem all holdings in equities. Many investors overwhelmed and cash out during the market rally. But by cashing out during bull market, investors are compromising on their long term financial goals. Therefore, rather than taking any short term measures, investors should keep on holding to their investments till their financial goal is achieved.


5. Hanging on to underperforming funds:

While investors should have a long time horizon for their investments, they should make sure not to hang on to underperforming funds. Investors should monitor their investments on a regular basis and if a fund is underperforming over a longer time and has incurred loss then it’s better to exit from that fund. Even if this entails booking losses, investors should not hesitate in exiting underperforming funds instead waiting to earn profits out of it and ultimately incur more losses.


Conclusion

Investors should avoid these common mistakes while investing in a bull market. Equity investments are essentially long term investments. By selecting good process driven mutual funds, and remaining invested in them over a long period of time, investors can create wealth in the long term by leveraging benefits of compounding. However we strongly suggest you to consult with your financial advisor before proceeding with any investment decision.

Tuesday, July 15, 2014

UNION BUDGET - KEY TAKEAWAYS

1-CONSUMER Sector (FMCG)

   Higher than expected excise duty on
cigarettes

Defensive stocks continue to remain
expensive

2-METALS

   Upward revision in royalty rates – not a
surprise, was already due

Levy of import duty on coking coal, met
coke to marginally impact companies

Increase in export duty on Bauxite from
10% to 20%, positive for aluminium
manufacturers without captive bauxite

Intent to resolve iron ore mining issues
quickly – positive for steel producers


3-HEALTHCARE

Not much announced in the budget

The government is focusing on
healthcare, regulatory and research
infrastructure, rural penetration and
health for all

Positive for domestic growth over the
medium to long term

US opportunity remains very positive
along with revival in domestic
formulations

US patent cliff to benefit pharma
companies and domestic formulations
could also do well going forward 

4-AUTOS

   The increase in Sec 80CC benefit and
hike in IT slabs may lead to more
disposable income (marginally positive
for two wheelers and entry segment cars)

Excise duty benefit had already been
extended till Dec’14 before the budget

We remain positive on passenger vehicles
and medium and heavy commercial
vehicles (M&HCVs)

Resolution of mining issues should
increase demand for M&HCVs

Recovery in economic growth would lead
to a revival in demand (already visible in
June auto numbers) 


5-OIL & GAS

   We expect major policy announcements
for the sector to come in the next few
quarters

Decision awaited on gas pricing
framework and actual roadmap on
reducing oil subsidies further

Broad guidelines discussed in the budget
are positive, in our view – the need to
overhaul the fuel subsidy regime
including targeted subsidies, emphasis
on raising natural gas penetration,
harnessing unconventional gas
production and reviving production from
mature/shut E&P wells 

6-FERTILIZER

   New urea policy to be announced.
However, the timelines are not clear.

We expect the higher budgetary support
to trickle down to the small and marginal
farmers; improving their ability to afford
high yielding variety seeds, fertilizers,
crop protection chemicals and irrigation
equipments

7-FINANCIALS

PSU bank re-capitalization would be
positive. More clarity awaited. Banks will
need roughly Rs 2,40,000 crore
(US$40bn) by 2018 to meet Basel-III
requirements

Infra lending: Banks will be permitted to
raise long term funds for lending to the
infrastructure sector with minimum
regulatory pre-emption

FDI in insurance increased from 26% to
49%

Debt recovery tribunals (DRT): Six new
debt recovery tribunals to be set up. This
is a positive and will speed up recovery of
bad loans

Housing Loans: Increased interest
deduction on housing loans to Rs200,000
from Rs150,000. Positive: will reduce
interest burden on the consumer. To
illustrate this, for a Rs2mn loan the
effective interest cost (after tax savings)
would decline from 6% to 5.2% 


8-TELECOM

   10% customs duty on high end telecom
equipment is a negative for telcos

9-INFORMATION TECHNOLOGY

   No specific announcements in the
budget

The sector may continue to benefit from a
global recovery and increased
discretionary spend in the US/Europe

Stronger rupee could pose a risk to
margins in the medium term

10-CAP GOODS AND
INFRASTRUCTURE/
REAL ESTATE

   Focus on roads (8500 KM in FY 2015) and
allocation of Rs. 37,500 cr. (27000 cr. last
year)

Power: 10 year tax holiday extended till
March 2017

Defense: Capital outlay for defense
increased by 20% to Rs. 95,000 cr.

FDI in defense raised to 49% with Indian
management control

Development of airports in tier 1 and 2
cities via PPP route

Business Trusts to benefit the sector as
companies could monetize income
generating assets

Real Estate: REIT will be positive for the
construction/Real estate sector  

Margin trading: Five smart things to know

1) Margin trading refers to buying stocks using cash borrowed from the broker using the securities purchases as collateral.

2) For instance, for a position of Rs 100, a broker may offer Rs 50 as margin funding at a specific rate of interest. The remaining Rs 50 will have to come from the investor.

3) If the stock moves up to, say, Rs 102 in 30 days, you repay Rs 50 with interest and pocket the rest. If split equally, it would mean a 24% annual return for you and your broker on an investment of Rs 50 each.

4) At an interest rate lower than the return percentage, the gains are higher for the investor. For an appreciation lower than the rate of interest, the gains are higher for the broker.

5) Margin trading can be risky. If the stock falls to Rs 98, you still have to pay the broker his Rs 50 plus interest. You lose Rs 2 along with the interest paid to the broker.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.) 

Best investment options under Section 80C to save tax

The Budget has raised the deduction limit. Here are the options in which you can invest to save tax:-

PPF
Rating: *****


The PPF is an all-time favourite investment option and the Budget has only made it more attractive by enhancing the annual investment limit to Rs 1.5 lakh. The PPF offers investors a lot of flexibility. You can open an account in a post office branch or a bank. The maximum investment of Rs1.5 lakh in a year can be done as a lump sum or as instalments on any working day of the year. Just make sure you invest the minimum Rs 500 in your PPF account in a year, otherwise you will be slapped with a nominal, but irksome, penalty of Rs 50. Though the PPF account matures in 15 years, you can extend it in blocks of five years each. The PPF is useful for risk-averse investors, self-employed professionals and those not covered by the EPF.

ELSS funds
Rating: *****


Equity-linked saving schemes (ELSS) have the shortest lock-in period of three years among all the tax-saving options under Section 80C. But this should not be the most important reason for investing in this avenue. Being equity funds, these schemes can generate good returns for investors over the long term. The minimum investment in ELSS funds is very low. Though regular equity mutual funds have a minimum investment of Rs 5,000, you can put in as little as Rs 500 in an ELSS scheme. Unlike a Ulip, pension plan or an insurance policy, there is no compulsion to continue investments in subsequent years. To make most of ELSS funds, stagger your investment over a period of time instead of putting a large sum at one go.

Ulips
​Rating: ****


The 2010 guidelines have made Ulips more customer-friendly. A new online Ulip launched by HDFC Life charges only 1.35 per cent for fund management. There is no other charge except for the risk cover provided by the policy. This makes the click2invest policy even cheaper than direct mutual funds. Keep in mind that a Ulip yields good results only if held for at least 10-12 years.

SCSS
Rating: ****


This assured return scheme is the best tax-saving avenue for senior citizens. However, the Rs 15 lakh investment limit somewhat curtails its utility. The interest rate is 100 basis points above the 5-year government bond yield. The interest is paid on 31 March, 30 June, 30 September and 31 December, irrespective of when you start investing.

NPS
Rating: ****


Its low-cost structure, flexibility and other investor-friendly features make the New Pension Scheme an ideal investment vehicle for retirement planning. The scheme scores high on flexibility. The minimum investment of Rs 6,000 can be invested as a lump sum or in instalments of at least Rs 500. There is no limit. The investor also decides the allocation to equity, corporate bonds and gilts. Be ready for a lot of legwork before you can buy.

Bank FDs and NSCs
Rating: ***


Don't get misled by the high interest rates offered on the 5-year bank fixed deposits. Interest income is fully taxable so the post-tax yield may not be as high as you think. In the 20 per cent and 30 per cent income tax brackets, it is not as attractive as the yield of the tax-free PPF.

Life Insurance plans
Rating: **


Though the Irda guidelines for traditional plans have made insurance policies more customer-friendly, they are still the worst way to save tax. The tax saving is only meant to reduce the cost of insurance. It is not the core objective of the policy.

Pension plans
Rating: *


The charges of pension plans offered by life insurers are significantly higher than those of the NPS. The difference can snowball into a wide gap over the long term. The other problem is that annuity income is still not tax-free, which makes pension plans rather unattractive for retirees.

Sunday, June 8, 2014

How Flipkart sealed the deal with Myntra

How Flipkart sealed the deal with Myntra
Flipkart’s Sachin (left) and Binny Bansal (right) have agreed to keep Myntra as a separate entity that will retain its website and continue to be led by Mukesh Bansal (centre). Photo: Hemant Mishra/Mint
Bangalore/New Delhi: In May 2014, For Flipkart.com and Myntra.com, merging with each other is all about remaining separate. Flipkart, India’s largest e-commerce firm, announced that it had bought Myntra, India’s largest online fashion retailer, in the biggest deal ever in India’s Internet space.
The e-commerce business in India is valued at $3.1 billion, excluding travel services and tickets, according to a November report by CLSA.
The long-awaited, cash-and-stock deal is likely to value online fashion retailer Myntra at more than $330 million, one person familiar with the matter said, requesting anonymity.
Following two-month long negotiations that led to Thursday’s announcement, both sets of Bansals—Sachin and Binny at Flipkart and especially Mukesh at Myntra—were clear that for a merger to make sense, Myntra would need to be kept independent.
The lessons of the past two years showed that apparel, unlike books and electronics, is a product category that requires specialization, deeper understanding of fashion, aesthetic presentation and experience, rather than volume-focused approach of Flipkart.
“Mergers are risky and integration can be very dicey,” Myntra’s CEOMukesh Bansal said in an interview. “So it was very important for me to ensure that we would not be integrating anything. Most of the discussions were to ensure that there is absolute alignment about the management autonomy.”
He got what he wanted.
Flipkart has agreed to keep Myntra (pronounced Mint-rah) as a separate entity that will retain its website and continue to be led by Mukesh Bansal, co-founder Ashutosh Lawania and the rest of the current management team.
For Flipkart, which started selling apparel two years ago, the deal is about gaining size and keeping Amazon IndiaSnapdeal and others at bay. The company started selling fashion products only two years ago but fell way short of its target to be the No.1 in the category by October 2013.
The deal was stitched together over several meetings in March, mostly held at the coffee shop in the Grand Mercure hotel near Flipkart’s office in the Koramangala area of Bangalore. The two sets of Bansals talked about how the merger could be mutually beneficial.
“The Flipkart team reached out to us and expressed interest in a merger. So we got involved to understand what they have in mind. As we interacted over a month, I could see they seemed very credible and authentic,” Myntra’s Mukesh Bansal said.
They discussed various ways in which he could achieve his goal of generating $3 billion or Rs.20,000 crore in gross sales by 2020. It was clear he would need $150-$200 million more. If Myntra didn’t merge with Flipkart, it would need to raise possibly more because the market was only going to get more competitive with Amazon carving out aggressive long-term plans for India.
A powerful case
By early April, Mukesh and his senior management team were convinced the best way to secure the future of the brand he had built was to join hands with his cross-town rivals.
“We could’ve have tried to do this alone. But we have key battles ahead. The choice was: we can fight all the four players (Flipkart, Snapdeal, Amazon, Jabong) or we can join hands with the strongest player and collectively fight the two key battles. One is the dominance of the horizontal marketplace and the other is the dominance of the fashion vertical. As I saw it, it made more and more sense to use money to fight the other players together rather than burn money to fight each other. I was really convinced that 1+1 can be four,” Myntra’s Mukesh Bansal said.
He spent April discussing the merger and valuations with other board members, investors such as Accel’s Subrata Mitra, Tiger Global’s Lee Fixel and Kalaari Capital’s Vani Kola.
Bansal wouldn’t give details on the discussions and the valuation but said that there were initially some directors, who opposed the merger and wanted Myntra to continue on its own. “But by that time, considering all that we’d discussed, there was such a powerful case for merger that it didn’t take more than a few conversations to convince anyone. Our board culture has always been such that they give the management autonomy and if most of the management team supports a decision, they usually agree to go ahead with it,” said Bansal.
Myntra board member Sudhir Sethi, chairman and managing director at IDG Ventures India, said the board of directors evaluated other options such as a future initial public offering (IPO), but decided unanimously that there were “big benefits in merging with Flipkart”.
“The fact that there are common investors, the founder teams are comfortable with each other, Myntra would get well-capitalized and also that both the companies are based in Bangalore—all these factors played a role. Myntra will also get access to the large traffic that comes on Flipkart as well as its massive delivery network,” Sethi said.
Achieving success in fashion is critical as apart from offering the juiciest margins, it is also expected to be the largest category in e-commerce over next five years. Buying Myntra, with its strong brand, fashion expertise, experienced management team and deep relationships with apparel manufacturers and retailers, is a straightforward way of ensuring a leadership position for Flipkart.
Nerve-wracking crunch
The case wasn’t as straightforward for Myntra and Mukesh Bansal, at least not in January. The company just raised $50 million from Premji Invest and others in January, following a year when it was forced to burn most of its cash in fending off deep-pocketed rival Jabong and, guess who, Flipkart.
The worst was behind it and by then large, global investors had shown willingness, at least in private, to invest in e-commerce, so Myntra could have raised more cash this year.
Then there was the personality aspect: Myntra’s Bansal is seen as a mentor by entrepreneurs including his namesakes at Flipkart and is much senior to them in age and experience.
He had rejected a similar merger idea put forth (in informal conversations) by common investors Accel Partners and Tiger Global Management late last year.
But as Flipkart’s Sachin Bansal reached out to Mukesh Bansal over the phone in late February with a serious merger proposal, the latter’s thinking had already changed to some extent.
According to conversations with Mukesh Bansal, and investors at the two Bangalore-based firms, four things convinced Mukesh to sell: the presence of common shareholders Tiger Global and Accel Partners offered familiarity and comfort; the mutual respect between him and his counterparts at Flipkart; the guarantee of access to a significantly large pool of funds that is unique to Flipkart; and finally, the nerve-wracking experience of the January fund raising, which was closed just as Myntra was due to run out of cash within couple of months.
In 2013, Myntra was looking to raise fresh funds but because of a number of factors—the depreciating rupee, overall negative sentiment about investing in India, Flipkart’s and Jabong’s aggressive push in fashion—most of the investors declined to risk putting in money into the company.
“The feedback from most of them was: we are interested and we like what you are doing, but not now. But we needed money then so ‘not now’ was not very helpful. We had cash till early 2014 so we were not in imminent danger of running out but still, six months of cash is nerve-wracking,” Mukesh said.
When Flipkart came to him with a proposal in February, the lure of money—Flipkart has raised $560 million, including $360 million in the past year—was much stronger.
From there on, it was only a matter of time before the deal was done. Flipkart and Myntra together generate more than 50% of the online fashion sales and the companies aim to increase that number to 60-70% over time.
Mukesh Bansal on Thursday announced the merger in style. Coming on stage, Bansal said he had an “exciting” announcement to make. Then, pausing, he said, “Let me introduce two colleagues of mine.”
And out walked Sachin and Binny Bansal.

Saturday, June 7, 2014

Why we don't invest in financial markets?

The Indian markets are in a buoyant mood. Hopes are high that the new government will be able to bring in big ticket economic reforms. Foreign institutional investors (FIIs) have already pumped in huge amounts of money into the markets. However, the market euphoria seems to have affected retail investors too. The optimism on the street is being driven by the hope of better days ahead. At such a time we would like to point out a sobering reality that may not change anytime soon. This reality has prevented investors from creating wealth.

As the chart below shows, the share of household savings in financial assets like stocks, bonds, mutual funds, bank deposits and pension and insurance funds, has fallen (as a % of total savings) since 2008. While the government has not released the data for FY14 yet, the situation is not likely to have changed much from FY13. As of today, nearly two thirds of household savings are in physical assets like Gold and Real Estate. Thus it is clear that retail investors have missed out on this market rally. It is indeed sad that when the markets were trading at reasonable valuations over the last three years, savings of Indian households did not find their way into the stock markets. Instead, a disproportionally large amount of savings went into Gold and property. Why did this happen?

Trust in financial savings has eroded

There is a two part answer to this question. Firstly, over the last five years, the Indian economy has suffered from negative real interest rates. In simple words, this means that the rate of inflation was higher than the interest rate offered by banks. Thus people had no incentive to keep their hard earned savings in bank deposits (or any other financial asset). To preserve their wealth, they moved their money into assets like Gold and property. The second part of the answer can be summarized in one word: Trust. Time and again, investors have been swindled by unscrupulous people and have lost their shirts in the stock markets. Even in the current up move in the markets, we have seen how brokers have tried to lure investors in to the markets with claims of high Sensex levels. Investors are being tempted by their so called 'advisors' to speculate in the markets with their hard earned money. Corporates, desperate to raise money, have already begun to draw up plans for expensive IPOs. We are all aware what can happen in times of euphoria. Rational thought is often sacrificed for quick profits. This can lead to huge losses as we had seen in 2008. It is such losses that scare away retail investors from markets. In a case of 'once bitten twice shy', they park their funds in so called safer investments like property and Gold.

However, the shift of household savings from financial assets to physical assets can have grave consequences for the economy as well. If savers prefer land and Gold over bank deposits and equity, then corporates will find it harder to raise money from banks and the stock markets. This has caused many corporates to delay their capex plans. In such a situation, corporates are unlikely to hire in large numbers. If the private sector does not create jobs, any economic recovery is likely to be an illusion.

The only long term solution is to bring inflation under control as soon as possible and improve regulation in financial markets. A healthy combination of positive real interest rates and better regulation will bring back the trust of retail investors. We certainly hope the new government will not disappoint investors in this regard.

If you do not own gold, now is the time...

Imposing import duty on gold has been just one of the attempts of UPA government to arrest current account deficit (CAD). The policy may not have had a meaningful impact on the deficit. However, what it certainly did was bring down the gold import volume dramatically (down 80% YoY). Meanwhile, the quantity of gold smuggled into the country has also growth disproportionately. And that has in many ways defeated the purpose of the import duty. So in what may come as a huge relief to gold investors, the NDA government is contemplating to cut the import duty. Given that the sentiment towards buying gold is already muted, the government probably does not fear stoking CAD concerns. More importantly, the constant foreign inflows after the change of government have also eased deficit concerns to an extent. Further fall in gold prices, in the event of a duty cut, should be seen as an opportunity to buy more gold we believe. While investors may not want to speculate on near term trend in gold prices, holding 5 to 10% of one's assets in gold continues to remain important. And the duty cut will certainly tilt the risk-reward balance for gold firmly in favour of the latter.  

The Dubious Recovery

Post the 2008 financial crash, loan growth has been relatively much lower than it usually has been. The loan growth has largely been restrained below the 8% levels at peak and declining as seen in the chart below - much lower growth than it used to be coming out of recession. It indicates that the consumer has not been confident enough to borrow. The absolute condition of balance sheets matter and we should not be surprised that this is a factor weighing on consumer and business confidence. People are waking up to the fact that they can't randomly borrow their way out just on the basis of notional wealth which can quickly vaporize at the first signs of risks to the economy.

Chart: Total Consumer Credit

Some might argue that although growth has remained relatively muted it has now turned positive which is far better than the deleveraging i.e. paying off the debt to decrease the financial leverage, that ensued as a result of the aftermath of the crisis.

Yes, borrowing from consumers has been growing but the major contribution has been coming from federal government guaranteed student loans which is unlikely to add to consumption. The past credit boom came from the likes of credit card debt, the auto loans and the home equity line of credit; these are the ones still showing signs of deleveraging.


Source: FRBNY Consumer Credit panel / Equifax


But that's not all; many of those in their early 20s, seeing how hard it is to find a job, are staying in college for longer, amassing outrageous levels of student debt in the process. Consumer credit increased by US$173bn YoY as on March 2014, with federal student loans accounting for US$125bn or 72% of that total increase. It's indeed logical to see the interest on student loans rising by the day and are now at all time highs. The bulk of the credit is taken to pay for the burgeoning education fees and this will likely be a drag on the economy even over the long run as well. This is obviously not a sustainable solution.

One bright spot

We can clearly conclude that from a consumer perspective, it's been a weak recovery from an employment side and also the resulting ability of consumers to borrow and spend seems compromised. However, there is one thing that we are closely watching for - if there are any signs of economic momentum building up. It is worth noting that recent months have seen a bit of a pickup in the commercial and industrial (C&I) credit. Much of the increase in bank credit has been primarily driven by the increase in C&I loans. As of March 2014, the total bank credit grew at 2.9% YoY whereas the growth in commercial and industrial (C&I) loans was 9.8% YoY.

Chart: Bank Credit and Commercial & Industrial Loans Growth (YoY)


We would continue to monitor this space but it's unlikely to lead to an economic breakout. This pessimism is largely on account of a few signals already alarming caution. A survey of senior lending officers revealed a greater percentage of banks easing standards and reducing spreads on C&I loans to firms of all sizes. There's deterioration in contract terms and pricing and that's potentially the kind of behavior that drives a crisis...sounds familiar.

Rest, The recovery enthusiast

The improvement in consumption is also likely driven by people dipping into their kitty. US personal savings have fallen from 5.1% of disposable income in September 2013 to 3.8% in March 2014 is indicative of the fact that people have been forced to fall back on their savings to make ends meet as incomes are not enough if at all and they are clearly shying away from borrowing their way out. Clearly, a pickup in consumption does not look that convincing if it is only driven by a falling savings rate.

Chart: U.S Savings rate


However, optimists continue to point out at recovery in house prices and surging stock markets as signs of growth.

One important aspect of all the supporters of the necessity of QE is clearly the improvement in household balance sheets caused by the recovery in house prices and the surge in American stock market. With all the liquidity sloshing around it's not surprising to see asset markets increase in value. With housing, the story is always more complicated than the top-line numbers suggest. The all-important housing market pending home sales index has largely been in a declining trend. The new purchase mortgage applications index has also continued to fail to pick up in a convincing fashion.

There is one thing that high asset prices do accomplish, however: the so-called "wealth effect."Along with booming stock prices, higher property values make people feel rich - "notional wealth". This then encourages them to go out and spend money. The policymakers have been fueling an asset reflation story with a hope that they can keep the US economy going until income growth and employment growth finally pick up convincingly.

The striking problem with the asset inflation story is that it only furthers extreme wealth distribution. Corporate profits have skyrocketed and the stock market has rebounded, but these successes have not translated into widespread prosperity. The benefits are only accruing to those at the top - the 1% - while leaving everyone else to fight over the few opportunities available. This problem is not going to fix itself.

Digging deep, it really seems convincing that the recovery is indeed dubious. It eventually will fall out like a pack of cards and will likely have a domino effect on the financial economy when it hits the wall. It's pretty uncertain as to when the day of reckoning arrives but the outcome is going to be disastrous. An allocation to gold in such uncertain times is important for investors. I reiterate that the main reason to own gold is just the sheer fact that it is one of the good portfolio diversification tools and thereby may help you to reduce overall portfolio risk.


Data Source: Bloomberg, World Gold Council

Monday, April 21, 2014

Earth Day on April 22




Each year, people from all around the world celebrate Earth Day on April 22. Festivals, demonstrations, and other activities are planned in cities everywhere to bring awareness to the earth’s rapidly depleting resources. Read on for 15 facts about Earth Day and things you can do to protect the environment.



#1

More than 20 million people participated in the first Earth Day on April 22, 1970. Senator Gaylord Nelson founded the holiday. The eco-friendly day began in the United States and became accepted globally in 1990.

#2

In 2009, the United Nations renamed the holiday International Mother Earth Day.

#3

More than one billion people from around the world are expected to participate in Earth Day events this year.

#4

Albert Einstein was a very forward thinker. He was awarded a Nobel Prize in 1931 for his endeavors in solar and photovoltaic experimentation.

#5

Recycling one aluminum can will save energy that’s equal to having the TV on for three hours.

#6

If all newspapers were recycled, 250 million trees would be saved. For each ton of paper recycled, 17 trees are saved. Americans throw away 600 pounds of paper each year.

#7

If you turn off the faucet while brushing your teeth, you will save four gallons of water every day. On average, water flows through a faucet at a rate of two gallons per minute.

#8

It costs about 50 cents per year to drink eight glasses of water each day from the faucet. If you drink your water primarily from water bottles, then it can cost you as much as $1,400.00 annually.

#9

Only about 27 percent of water bottles get recycled. The bottles that don’t get recycled can take thousands of years to decompose.

#10

For each ton of plastic that gets recycled, up to 2,000 gallons of gasoline are saved.

#11

Reducing your shower time by five minutes will save 10 to 25 gallons of water.

#12

It takes about 100 gallons of water to make one gallon of milk.

#13

It takes approximately 634 gallons of water to produce one hamburger.

#14

You can recycle 84 percent of household waste.

#15

If the whole world used resources as much as Americans do, four more planets would be needed for resources.
Earth Day certainly brings an increased level of awareness each April, but the environment should be recognized every day of the year. With resources dwindling, you can help protect the planet by considering these facts as you go about your daily routine.

Sunday, April 20, 2014

Should you be a growth investor or a dividend investor?

Should you be a growth investor or a dividend investor? The former focuses on prospective investments with high earnings growth potential, but lays little focus on dividends. The latter looks for cash cows that would generate stable dividend receipts. But what if you can have the best of both the approaches? Yes, we are referring to dividend growth investing, which is like eating the cake and keeping it too. If you were to look at Warren Buffett's investment track record, you would find many investments that fit into this category. In fact, an article in seekingalpha.com points out some insightful data from the current Berkshire Hathaway portfolio. Of the 43 publicly owned companies in the portfolio, 32 companies pay dividends. It is worth noting that over three-fourth of the total portfolio value is accounted by the top 8 companies. And all of these are dividend payers.

What is the secret behind dividend growth companies? These are typically businesses that have strong long term growth potential and are cash generating machines. In other words, the incremental capital required to grow these businesses is minimal. So if you want to be a successful dividend growth investor, zero down stocks that have these basic characteristics and buy them when they're available at a bargain price.   

Friday, April 18, 2014

Importance of CIBIL score and Credit Information Report (CIR)



A good credit score is one of the most important eligibility criteria based on which a bank gives you a loan. Your credit score, which the Banks check through CIBIL, is a precise indicator of your credit history which reflects factors like: -
  • Record of late payments and defaults.
  • Loans and credit cards that you currently hold.
  • Diligence towards paying loans and credit card bills.
  • Number of loan and credit card applications submitted by you.
Diligence towards repayment and having secured loans like home or auto loans works positively for your CIBIL score. On the other hand, payment defaults and too many loan or credit card applications can have a negative impact on your CIBIL score.
A good CIBIL score helps banks to determine your credit-worthiness and approve loans and credit card applications faster.

 What is CIBIL?
Established as the Credit Information Bureau (INDIA) Limited or CIBIL in August 2000, CIBIL is India’s first Credit Information Company (CIC) and is the central recorder of the credit information of all the borrowers. CIBIL collects and maintains all the record of each particular individual regarding the loans and credit cards and provides the same information to all other financial institutions, so that the banks can be aware of your credit history before approving your loan.
This information is provided to CIBIL by the member banks and finance houses. Every time you borrow a loan or avail a credit card, your credit and repayment information is collected and submitted by the member bank to CIBIL on a monthly basis. This information is collected and recorded to create a Credit Information Report (CIR), which is in turn shared with all the other banks and financial institutions.
The next time you walk into a bank to apply for a loan, your CIR is first verified by the bank, to prevent the bank from providing a bad loan or lending money to borrowers who may not be credit worthy.
Thus, the CIR is your credit score sheet, which the bank verifies before approving your application. CIBIL has played an important role in the Indian financial system, providing efficient information and preventing a bad situation.

How does it work?
To approve you a loan, the credit lending organization must gather your credit score and repayment history, which may be spread over at various institutions. CIBIL collects and organizes your data and provides the same to all the banks and financial institutions, which by default are members with CIBIL. The bank uses this collective credit history to determine whether your application should be approved. It helps the bank to function efficiently and in an economical way.
Thus a CIR is a factual report which provides an idea on your credit and payments history. Every time a lender seeks a CIR of an individual from CIBIL, a unique nine digit control number is generated which the CIBIL uses to track an individual’s report from its database. A new control number is generated every time a request is made.

Can you check your CIR?
Every individual has the right to obtain his/her respective Credit Information Report (CIR). It is through this that you can determine your credit scores and standings. CIBIL does not mark you or any individual as a defaulter, but it is just mentions a particular score on your CIR. It is entirely dependent on the respective bank to determine who it considers a defaulter. The CIR credit score or the Trans Union score ranges from 300-900.
You can access a copy of your CIR by applying over the CIBIL website. You can make the payment online as well. You can find out more details at www.cibil.com.
Documents to be required in the process:
  • A CIR request form
  • Identity Proof of the requestor (Voters ID/PAN card/DL/Passport)
  •  Address Proof (Electricity bills/Passport/Bank statements)
  • In case you have cleared off your debts but your CIR has not been updated with CIBIL, all you need to do is to:
  • Log on to the CIBIL website. https://www.cibil.com/
  • Purchase your CIBIL credit report.
  • Identify the error.




Get in touch with CIBIL through the Online Dispute Form to get the error corrected.


Be advised that CIBIL needs the Control Number of a CIR when you are raising a Dispute Resolution request so that it can review your report and make the necessary amendments.