High current account deficit (CAD)

One of the major challenges facing the Indian economy has been the high current account deficit (CAD). This has resulted in substantial downward pressure on the Indian rupee. Under pressure, policymakers turned hostile towards India's obsession with the precious yellow metal. Between January 2012 and August 2013, the import duty on gold was raised from 2% to 10%. Further the Reserve Bank of India imposed a ban on imports of gold coins and medallions in a bid to tame the rising CAD. This ban resulted in a substantial drop in gold imports.

As the chart of the days shows, from 140-160 tonnes during the months of April and May 2013, gold imports have fallen sharply to about 11-12 tonnes during the months of August and September. One important point to remember is that while legal gold imports have fallen, this has resulted in a significant rise in gold smuggling. This is a major challenge for policymakers as it makes the curbs on gold imports futile but also results in revenue losses for the exchequer.

Sharp fall in India's gold imports

Global youth unemployment

The impact of economic crisis has been felt the most on the scope for youth employment all over the world. As per a recent report by International Labour Organization (ILO), lack of employment opportunities is expected to be the biggest risk for an entire generation of youth. The global youth unemployment level has never been as close to the 2011 high of 13%. At 12.8% of global youth population, the number does look scary. But for countries like China and India that house most of the youth population, the unemployment problem is much bigger than it appears to be. 

Global youth unemployment near two decade high

Investing in ATMs

Fixed income investments are hardly offering any inflation adjusted returns. Bond yields have been very volatile. Stocks, mutual funds and property are already part of their portfolio. Hence, high networth individuals (HNIs) have been looking for alternative investment options that offer returns commensurate with risk. And they have found the answer in ATMs! Yes, you read that right. Investing in ATMs to fetch rent is the latest fad in Indian realty investment space. As per an article in Business Standard, the high demand for social infrastructure near new townships has created this opportunity. Townships need infrastructure such as schools, hospitals, malls and ATMs. Plain vanilla realty investments are no longer fetching the double digit returns per annum seen earlier. Hence, theme-based properties such as ATMs, warehouses, industrial plots, private schools, hospitals, high-street shops, etc are now being invested in. In this case, the HNIs buy the property from a developer that assures a guaranteed rent every month. The agreement to stay invested is with a pre-decided lock-in period. The lock-in period for ATMs and warehouses is usually three to five years. For hospitals and schools, it could be as high as eight to ten years. While there is seemingly nothing wrong with the nature of such investments, the potential risk could be for the tenants. Demand for higher rental from such social infrastructure could push the operating costs for schools and hospitals to unsustainable levels. 

Unemployment : a big concern in the West

Unemployment is a big concern in the West. Widespread slowdown and rampant outsourcing due to cheap labor available in other countries have hurt the employment prospects particularly in US. With hiring having virtually come to a standstill, the western region is glaring at a big unemployment menace. While slowdown in the West has impacted the employment opportunities in other countries as well, however India Inc seems to be in a buoyant mood as far as hiring in 2013 is concerned. Approximately 62% of the businesses plan to hire workers in India this year. This is despite the fact that business sentiment in India is low. The hiring plans are quite surprising considering that bureaucracy has become a big hurdle for smooth functioning of businesses in India. In fact, many Indian honchos have expressed their desire to set operations overseas. However, the optimism reflected by India Inc in hiring is a signal that things are going to settle soon. After India, Georgia is likely to witness the next best hiring statistic followed by Peru and other smaller countries. No major developed country appears in the top 10 list. It appears that unless some sort of revival happens the developed world is likely to face the problem of unemployment. 

Countries with best hiring prospects in 2013

Data source: Yahoo Finance

What to expect from future US Fed chief Ms Yellen?

So, Ms Janet Yellen is almost confirmed as the next US Fed Chairman barring some last minute surprises. However, don't expect any radical changes in the way the US central bank is run. For if her public statements are anything to go by, she seems to be cut from exactly the same cloth as her predecessor. And there is no doubt that she will continue with the policies Bernanke-led Fed has pursued. In other words, the best way to deal with a problem of excess money is to throw more money at it. Indeed, for people like Yellen and her ilk, the economy is nothing short of efficient machine. You pull and press some levers here and there and low and behold, the problem is solved. Nothing can be further from the truth though. For unlike machines, every economy has thinking, decision making participants. And one just can't have a one size fits all approach for these kinds of systems. Consequently, the best solution is to leave the economy alone and not continuously meddle in its affairs. However, the appointment of Ms Yellen goes to show that nothing has been learned at all. 

Stock Recommendation Dabur

The counter seems to have formed a strong base around 166 level as it is witnessing regular bonce back from the said level.
The counter formed a strong bullish candle followed by a sort of pin bar candle on a daily chart.
Besides the counter is trading very close to its all time high.
Considering all these facts and with indicators looking quite bullish ,
We are of the opinion that the counter is all set to touch new heights in near future.
Recommend buy at 171.7 with closing stop loss of 166 target 185-192 in short term.

Stock Recommendation EMCO LTD.

The counter after a long consolidation managed to close above rs.14.5 mark with decent volumes.
With other indicators too looking quite bullish further upside in a short term can't be ruled out. Recommend Buy at 14.75
with strict Stop Loss of 12.5
Target 18-29 in a short term.

7 new bank licence coming soon

Despite being acutely affected by the economic slowdown, this sector remains in the wish list of government and private sector alike. The licenses for new banks in India have been under deliberation for a while now. RBI governor Dr Rajan has committed to issuing the licenses by end of the fiscal. And despite the RBI's initial reservations about allowing too many entities to foray into banking it seems the number is not too small. As per Economic Times, the RBI has decided to issues banking licenses to 7 applicants. More importantly, in the RBI's own words, the entities fetching the license will not be 'look-alikes'. The RBI had earlier proposed differentiated licensing. This is a practice already followed in the US and Singapore. Differentiated licensing could enable specialists such as infrastructure lenders or gold loan companies to do niche lending. Such banks get a regulatory treatment different to what it is for existing banks. For now, nothing except the number of licenses to be issued is finalized. However, we believe that the new entities will not immediately have a meaningful impact on the level of competition in the sector. In fact, it will be at least two years before that is the case. Meanwhile, the inefficient entities need pull up their socks. 

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Can India survive QE tapering by Fed?

For years, emerging-market currencies benefited from the US Fed's ultra-low interest rates and easy-money policies. Since the time the US Fed adopted near zero interest rate, cheap money in the developed markets found its way to emerging markets, particularly ones in Asia. 

But this trend showed a sharp reversal when Fed Chairman Ben Bernanke signaled the move to exit quantitative easing (QE). More than US $47 bn has been withdrawn from global funds' investments in emerging market stocks and bonds since May 2013. The largest reaction of this was on the currencies of current-account-deficit (CAD) countries. These include the Indian rupee, Brazilian real and Turkish lira. These currencies were most vulnerable to Fed guidance because they rely so heavily on foreign capital flows to fund their current account gaps. This sell-off reminded everyone of the 1997 Asia financial crisis. But, according to CNN Money, the present situation is very different. 

The depreciation in Asian currencies is not a reflection of their regional economic weaknesses. The economic fundamentals of the region have strengthened due to the prudent economic policies implemented since the 1997 crisis. Similarly, Asian companies and financial institutions have built stronger balance sheets and healthier gearing levels. This has made them more resilient against market volatility. Asian policy makers are also more proactive and pre-emptive in managing asset price inflation and consumer credit. 

Additionally, Asian economies have benefitted from rising intra-regional trade, investments and consumer affluence. These trends will continue to drive the region's economic growth and cushion it from possible global capital outflows. It is true that QE pullback announcement has put pressure on Asian currencies. But it is more due to the result of improving growth prospects in the US. As a result money is starting to return back to the US. 

The US Fed's decision to postpone the "tapering" of its easy money policy has given emerging Asia valuable breathing space. But with continued uncertainty over the Fed's actions, how long before the Asian market sell-off begins afresh? 

It remains to be seen to what extent a scaling back of QE will impact financial market conditions in emerging Asia. What is clear, however, is that asset prices that have become unnaturally inflated by cheap money will correct. Whether or not in the proportion of 1997 crisis, the correction will be painful, for Asia in general and India in particular. 

Do you think Asia can survive the QE tapering by Fed?
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Inflation by WPI and CPI

The Reserve Bank of India (RBI) in its September quarter review surprisingly increased the repo rate onconcerns over inflation. One macro issue in India that deserves renewed attention is the preference for the wholesale price index over the consumer price index for tracking inflation. Indeed, the WPI is given much greater importance than the CPI by the Reserve Bank of India for calibrating its monetary policy. This is a serious policy faux pas. Or core inflation - defined as non-fuel, non-food inflation? In the past, WPI and CPI inflation moved closely together, so ambiguity on which rate to focus on was not such an issue. But over the last five years they have consistently diverged - largely due to food inflation, which has a much bigger weight in the composition of the CPI Index. India's use of WPI inflation for monetary policy is in contrast to the reliance on CPI inflation by central banks and governments in other countries. Perhaps the RBI should rethink the way it gauges inflation. 

Inflation by WPI and CPI

Source: Business Standard

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Can the auto industry recover this fiscal?

Things have never been so bad for the Indian auto industry. For instance, as per SIAM, car sales in India have fallen 4.7% in the first six months of this fiscal. This is the sharpest decline in half-year sales since 2002-2003. Indeed, auto sales were subdued in FY13 and the trend is expected to continue for FY14 too as slowdown in the economy, higher interest costs and fuel costs take its toll. Besides cars, commercial vehicles have been particularly hit hard as the fortunes of this segment are closely linked to that of the Indian economy. The silver lining in the cloud this fiscal has been healthy monsoons. And so there are hopes that this should raise incomes which will spur some demand for cars. But a broader recovery this fiscal looks doubtful. 

Meanwhile, many of the auto companies have gone in for price hikes despite such difficult conditions to pass on costs related to the steep depreciation for the rupee. Most of them are focusing on product launches as well. While the latter may not do much in terms of bolstering the fortunes of the sector in a weak environment, we believe that in the longer term product launches are essential on account of the stiff competition in the auto space. 

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Basic Things To Know Before Buying Travel Insurance

If you are planning to travel abroad, then don’t forget to take travel insurance. When you go to an unknown place, you might never know what might come-up next.

You might be able to deal with situations where you lose your air ticket or any cancellation of the ticket. But circumstances like accidents, loss of your wallet, passport or other important documents might result in havoc.

Here are few things you must know about buying travel insurance, as listed by Economic Times.

1. Personal Details

Personal details like name, passport number, date of birth, contact details are the most necessary ones. Along with that other information like journey details, such as the place you are visiting, visa, trip duration, dates of travel and numbers of travelers are also important to get the travel insurance.

2. Cover Insurance

The insurance company provides you with various plans, each offering a different kind of benefits. When you are choosing travel insurance, make sure that pick the one that rightly suits you.

3. Premium

The premium of your travel insurance varies depending on various factors like the place you are going to visit and the duration you are going to stay there.

4. Policy

You can either apply for the policy by meeting a policy agent directly or through online. If you are applying online, you will get a conformation letter immediately to your personal e-mail along with the policy document.

The policy will have all the personal information of the policy holder like name, policy number, and other details for claim submission

Trade deficit: Where to from here?

India's trade deficit declined to US$ 6.8 bn during the month of September 2013. This is the lowest figure since March 2011. The same was largely on account of a sharp 18.1% reduction in imports - due to lower crude prices and gold and silver imports. On the other hand, merchandise exports increased by 11.2%. But the key question here is, is this a reason for India to cheer? Well, not entirely as this may not be a sustainable trend. Crude prices - which are not in our control - were lower last month and helped the country report better numbers. Further, while the investment scenario in the country may be dull at the moment, as and when things take turn for the better, companies will look at importing more capital equipment which would change the trade deficit scenario entirely. The long term solution we believe is to boost exports, by making India more competitive on a global scale.

Trade deficit: Where to from here?

Data Source: Mint

Importance of credit score in improving chances of getting a loan

Many Financial Experts share  several tips on how to improve one's credit score and brighten prospects of getting a bank loan. Originally propagated by credit information companies like Credit Information Bureau (India) Ltd (Cibil), Experian and Equifax as part of their campaign to educate the average individual about the importance of a good credit history, the dos and don'ts list has acquired a demonic flavour at the hands of some of these experts. For example, a 35-year-old executive at a private firm was told by his financial adviser that he should consider taking a loan just because it will improve his credit score. Another was asked to get rid of his multiple credit cards to boost his credit score.

The expert wouldn't budge even after the person explained to him that he was using those cards for specific purposes like air travel, buying petrol, eating out and so on and that he gets discounts and other benefits on those cards. Also, those cards were issued to him free by the banks he had accounts with. "Even I was told recently that I should go for a loan because it will enhance my credit score and my chances of getting a loan from a bank in future," says Gaurav Mashruwala, a certified financial planner. "Somehow the Gujju blood in me doesn't buy the argument that I should pay interest now on a loan to get a loan in future."

Enter Credit Score

What's the score is almost always about cricket in this country. However, loan seekers have started dealing with another score --credit score -- in the past few years. Cibil was launched in 2000, but in the past three to four years the company has managed to get into the consciousness of loan seekers with their credit score and credit information report.

"When we started out there was very little consumer awareness about the importance of having a good credit history or a good credit score. Our efforts were to fill this gap through a series of educative articles in the media," says Harshala Chandorkar, senior vice-president, consumer relations, Cibil. However, these seemingly simple pointers (minus the valuable details) have become almost a mission statement for some selfstyled advisers.

Bankers' Day at Work

Mashruwala says he finds it incredible that banks wouldn't go beyond credit score while assessing loan applications. "I don't think any bank would overlook the history of your relationship with it," he says. Rajesh Kumar, senior executive vice-president and head of debt management, risk intelligence and business analytics at HDFC Bank, clears the air: "The objective of a bank's credit appraisal process is to evaluate the capacity and the intention of a customer to repay a loan as per the agreed terms." He goes on to explain the process in detail: the bank collects information, relevant documents from the applicant and the credit information from bureaus.



This information is then processed against the predefined credit policy of the bank and, depending on the type and quantum of loan, typically banks collect the applicant's personal information. "This provides insights into the applicant's capacity to repay a loan. The credit bureau report provides details of the applicant's existing and closed loans, card details like amount sanctioned, tenure and promptness of repayment.


This clearly indicates the intention of the applicant, in terms of discipline towards debt obligations," he adds. Jairam Sridharan, head of consumer lending and payments at Axis Bank, says it is always a combination of factors that helps secure a loan. "Of course, a credit score of above 650 would definitely help, but a bank will also look into a host of other factors, including age, growth profile of the individual, demographic profile, the profile of the assets..."

Fixing the Problem

"Typically, banks inform the customer about the reasons for the rejection of her loan. If the customer finds that the reason given is wrong information about poor credit repayment in the past, then she needs to contact the credit bureau and the lender who reported the same and get the same rectified," says Kumar of HDFC Bank.

"The regulators have put in place a well-established process with clear timelines to help the customer carry out the rectification." Jairam says individuals shouldn't look for oversimplified methods to improve credit scores. "Individuals should remember that if they have a loan for an extended period of time, they should make payments on time." Chandorkar also asks individuals to pay attention to the details.

At the end of it, it all boils down to good financial habits, say financial advisers. Multiple credit cards won't spoil your chances of getting a loan, but your spending and repayment habits definitely can. Similarly, entertaining every other offer for a personal loan won't automatically disqualify for a loan, but you may have to do some explaining to the bank. This is because your credit history will show that you are always looking for credit. Always remember that there are credit information companies maintaining your record of payments on loans and credit cards, and submitting it to banks and other lenders on a monthly basis. And that eventually settles your credit score.  

Top Seven Reasons Why I Use My Credit Card for Everything

I charge absolutely everything to my credit card. Everything. Even $3 purchases if I can. Why, you ask, in a world where credit cards are "evil," would I do such a thing?
I am a credit card junkie (and have been for many years) for a number of reasons:

7. It builds up a great credit rating.

By charging and paying off up to thousands of dollars in expenses each month, I have built up a rock-solid credit rating — the best one possible. So whenever I have sauntered into the bank for a loan, I have been accepted right away, and at the lowest possible interest rates, with no security deposits required.

6. It's quick and easy.
Swiping a card these days is often as quick as (if not faster than) paying with cash and counting out coins.

5. It's great for accounting and spending reports.

Since I don't dole out cash, or make purchases on my debit card (and I rarely use checks), all my monthly spending is nicely bundled into one report — my monthly credit card statement. Not only that but my current credit card of choice actually categorizes my spending for me, so at a glance I can see how I've spent my pennies for the month and year-to-date.

4. I don't need to carry cash.

Trips to the bank machine are few and far between, as $60 can last months depending on my spending needs.

3. Automated billing is great.

Cell phone bills, utilities, cable, you name it. If I can sign up for automatic billing, I do. It doesn't mean I don't look at each carrier's statement to ensure the charge is correct. But it does mean that on a monthly basis I don't have to worry about paying any bills (other than my credit card!) - they're already paid.

2. Almost everybody takes Visa.

From the coffee shop to the grocery store to online spending to travelling, to…well…everywhere. I have Visa, MC, and AmEx, but I find that Visa is most widely accepted worldwide.
And my number one reason for charging everything to my credit card (drum roll, please):

1. Frequent flyer miles.

Since I started to charge all expenses to my credit cards, I have collected and redeemed miles for everything from fancy dinners to sports gear, to multiple flights all around the world. Hey — just for spending money I would always have spent, I've been able to take advantage of all sorts of free swag. What's better than free?
Note: The trick to a spending plan such as the one I have laid out here is a rock-solid budget. I never (read: never ever) spend beyond my ability to pay off the bill in full each month

What would happen when the US starts tapering off its Quantitative Easing (QE) program?

What would happen when the US starts tapering off its Quantitative Easing (QE) program? The flood of money that has entered the emerging markets would start to pull back. And when that happens, prices of all asset classes are expected to fall. We have already seen this happening when the US Fed announced a possibility of a taper. Therefore it is indeed a scary thing to imagine what would happen when the actual tapering off starts. This is something that is worrying nearly all the emerging markets and India is no exception. To all these countries, the International Monetary Fund (IMF) has a simple advice. It is encouraging these countries to give the flexibility to domestic investors to invest abroad . The funds so invested could be repatriated when times take a turn for the worse. This would help support the country's currency and capital markets especially during events that lead to an exodus of foreign capital.

On the face of it, this sounds like a simple and easy to follow advice. But the technicalities are complicated. For India to do so, it would have to open up its capital account. This is something that has been discussed in the past but has not been implemented so far. The problem for India is the pitfall related to freeing the capital account. For although it allows for free inflow of funds, it also allows for a free outflow of funds. And it is the latter that has been more worrisome for India. With the economy in the condition that it is, and the investor confidence sinking on a daily basis, policy makers would be worried about an immediate outflow of funds if they open up the capital account. However, for long term stability, this is a pre-requisite. Therefore policy makers would do well to enact policy reforms and implementation to strengthen the economy from within.

Penetration of ATMs in India remains low

Offering adequate financial services to an economy like India is no mean task. One reason for this is high illiteracy. Then again, even amongst those literate, there is very little knowledge about financial services and products. It is the metros and Tier 1 cities which typically tend to have adequate financial services, with the rural regions lagging far behind. That is why Indian banks have no choice but to bear the burden of reaching out to the hinterlands. One of the parameters for gauging the development of financial services in the country is the number of automated teller machines (ATMs) set up. As today's chart of the day shows, these were quite poor in India in 2012 when compared to its peers in the BRIC region.

Penetration of ATMs in India remains low

Data Source: The Economist

What would happen if the Indian govt. shuts down?

For the first time in 17 years, the US government has faced a shutdown. This has been on account of an impasse between the Democrats and the Republicans on the broader fiscal policy. The key issue of the funding bill has been the healthcare law otherwise known as Obamacare. Because of the government's relentless bailouts, overall government debt has risen to unsustainable levels. The healthcare law is expected to pile on the pressure on finances. This law in particular has largely been  unpopular with the Republicans. The latter has been gunning for a cut in government spending and are pushing the Democrats to affect a cut. But they are in no mood to relent. And so the shutdown is expected to continue until such time an agreement between the two parties is reached. 

As far as the impact goes, as per an article on Firstpost, as many as 1 m government employees could face unpaid leaves or missed paydays as part of the spending cuts. Overall, the credibility of the US government will be called into question. As reported in Bloomberg, a partial shutdown of the federal government would cost the U.S. at least US$ 300 m a day in lost economic output. The impact is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers. This does not bode well for an economy which is already reeling under recession and stagnant growth. 

Now what would happen if a similar scenario was to play out in India? After all, a political impasse in India is nothing new. It is something which the country is witnessing even now. So what will happen if the Indian government shuts down? Considering the current sorry state of affairs, it may not be such a bad thing we believe. The government at present has failed to do anything concrete or meaningful for the economy. For most of its tenure, it failed to move on the reforms front. Later some measures were announced, but the implementation of the same remains largely hazy. Scams and large scale corruption, blatant bureaucracy, stained finances and perpetual bickering with the Opposition has rendered the government largely ineffective. So if it is not going to do anything, then maybe a shutdown is not such a bad idea. What is more, if this results in bureaucratic government staff going on unpaid leaves, it is actually a boon. It may do quite a bit in lowering the government's overall unproductive expenditure. On a more positive note, who knows, but such an experience might just kick it into action. 

Do you think that the Indian government shutting down might be a good thing for India?

Why you should use a credit card

Why you should use credit cards 
Credit cards provide us with the privilege of responsible short-term borrowing. Yes, they can be abused, but when used wisely and responsibly, credit cards provide valuable benefits, including:

• Convenience. With plastic, there's no need to carry wads of cash with you everywhere you go.
• Peace of mind. Unlike credit cards, if you lose your wallet, the cash in it is gone forever. Worse, those seen with large sums of cash are more vulnerable to being robbed. I hate being robbed. In fact, it's happened to me twice.
• Expense tracking. Credit card companies send monthly statements of all your purchases that make it very easy to track your expenses.
• Consumer protection. How many times have you bought something on the Internet and never received it? Or didn't get what was advertised and the merchant refused to give you your money back? A simple call to your credit card issuer is usually all that's required to fix the problem.
• Insurance benefits. Often, credit card companies offer product insurance if an item is stolen, and many offer free rental car insurance.
• Extended warranties. Some credit card companies will offer extended warranties on certain items.
• Credit history. When they're used responsibly, credit cards help establish your credit history and build your FICO scores,  which is especially valuable if you need longer-term credit extended to you. Those with high FICO scores get the most favorable interest rates, which can mean savings of tens or hundreds of thousands of dollars over the life of a loan.
• Rewards. Whether it's cash back, airline miles, free gasoline or other incentives, plenty of credit cards offer rewards. I've received thousands of dollars in cash and other perks over the years by simply using my credit card to make purchases

Indian farmers lost money in bubble burst

Another bubble burst. No this time it's not about asset classes such as real estate or gold or else. It's the farming business. The breeding of an Australian bird-Emu has met its end. Now, "Emu" is a large flightless bird resembling an ostrich and tasting like beef. Farmers across the world including India made some quick and high bucks with Emu farming. Emu raising for its meat, eggs and oil was a lucrative business opportunity some 5 years ago.

However, today the picture is grim. The herd mentality instinct led to mad rush of farmers in this business. Therefore, the feed costs tripled in a period of 3 years. And with the exploding emu population, the price of emu meat fell almost 25% in the same period. Buyers diminished. And farmers lost their money. Hence, killing the birds was the only option left to the farmers in order to reduce their losses. Not just that. The economics pertaining to this business also failed. Few entrepreneurs accepted deposits from the investors to capitalize on emu farming. Almost as high as 75% returns were promised. People were taken on a ride with tall assurances of investments doubling in 3 to 6 months. But the emu scandal plagued by auctioning of emus at fire-sale prices played spoilsport. Payments stopped and investors' concerns surmounted. Thus, oversupply, increased costs and greed led to the fall of the emu farming business. With more than half of India's emu farmers leaving the business and the investors losing money, the emu business is in a state of limbo.    

RBI asks temples to declare gold holdings

The Indian Government, saddled with twin deficits, has now turned to the Gods for help. It is perhaps with this intention that the Reserve Bank of India has sent notices to richest Indian temples to disclose their gold holdings. It is important to note here that gold is the second biggest imported item in the country after oil. Hence, high gold imports are a key culprit behind the record trade deficit. Now most of this gold is either hoarded or some part is donated to temples. As per the World Gold council report, the gold that lies with Indian temples is estimated at US$ 84 bn. Just to give you an idea, this is 56% higher than annual value of gold imports in FY13. 

While the central bank is calling it a data collection exercise, the Hindu temples are in no mood to entertain. One may argue that the gold lying with the temples is unproductive and it will do the nation some good to bring it back into circulation. However, one must not forget that the Government has no right on this gold, unless the religious institutions volunteer. The mess that the economy is in these days is because of the rampant corruption and mismanagement of public funds by the Government. There is no guarantee that the temple gold will not be subject to the same kind of corruption and mismanagement. Instead of eyeing the temple's gold, the Government should perhaps put in efforts to bring back the black money that has been stashed abroad.

Washington's impending shut down

You would think that political deadlock and playing the blame game is something that is prevalent in only India. But that appears to not be the case. Indeed, the US is facing a political crisis too as both the parties are not able to come to an agreement over the country's broader fiscal policy. And that is why there is the possibility of Washington facing a shut down from today. This means that due to the automatic spending cuts, many government agencies are expected to close down. And the non essential government staff will be forced to go on an unpaid leave. The spending cuts also seem to have impacted anti-poverty programmes and early childhood education among others. On top of that, the healthcare law 'Obamacare' has also been the subject of dispute between the parties. US has been plagued with the problems of recession, massive debt burden and unemployment for quite some time now. Relentless money printing by the US Fed has done almost nothing to jump start the economy. The only thing it has done is to take government debt to unsustainable levels. So spending cuts will have to be the norm if there is any hope of bringing the debt down. Anything else will only delay the issue further before it blows up on the US economy.    

Will Shanghai's free trade zone be a game changer?

o you know what's the best way to launch a big bang project? Especially one that has not been tried before and is a game changer of sorts? Well, the best approach in a situation like this would be to undertake a small pilot testing. In other words, the idea is to launch on a small scale first so that any glitches are taken care of before the final, large scale roll out. And it looks like China has taken this advice really to heart. As per CNN, the dragon nation has launched a new free trade zone in Shanghai over the weekend. Although no details are out yet, the new zone is expected to make it easier to do business in a small part of China. In other words, it is an attempt to move from an economic model that has so defined China over the past two decades. After years of explosive growth, the current growth model of mass manufacturing is in grave danger of burning itself out. And therefore the Government is making a desperate attempt to wean away from it and replace it with a more liberalised, free market approach. While the policymakers' heart is in the right place, its success or failure will play a significant role in shaping China's coming decades we believe.      

Writing off by Banks

The problem of banks having to write off NPAs has become so acute for India that even rating agencies have sounded alert. And it is not very difficult to figure out why. As per data from International Monetary Fund (IMF), Indian banks sport the least equity capital buffer amongst banks in Asia. This means that the Tier I (only equity) capital less net non performing assets is the least for banks in India. In the event of a deluge in NPA, the possibility of equity capital getting eroded is highest in the case of Indian banks. While the RBI is not yet calling NPAs a systemic risk for Indian banking, the problem is conspicuous in the case of few PSU banks. 

Indian banks sport least capital buffer for writing off NPAs

Source: IMF

How much you owe decides debt repayment responsibility !!

"If you owe the bank Rs 100 that's your problem. If you owe the bank Rs 100 m, that's the bank's problem". This quote has been immortalized by scores of defaulting companies in India over the past two years. Only a few like Kingfisher Airlines grabbed media attention for holding India's top banks at ransom. Even the largest bank in India, State Bank of India (SBI), has been a victim of the wayward and financially sick aviation company's inability to repay debt.

After being in the aviation business for 7 years, the company amassed Rs 70 bn in debt. Vijay Mallya, the promoter of parent company United Breweries (Holdings), made no attempt to stem the steady decline in the company's fortunes. First the jet fuel suppliers stopped giving the airline fuel credit. The unpaid fees to airport operators and other agencies deprived it of licenses. And finally, pilots and cabin crew were forced to leave the cash strapped airline for non-payment of salaries. But instead of holding the promoter responsible, the aviation ministry was at one point considering bailing out the defunct airline. Lack of bankruptcy laws left little recourse for the bankers, who until recently could not even seize the airlines' immovable properties. The promoter meanwhile used the promise of stake sale and FDI in aviation to his advantage. What was most shocking was that the company's CEO took home a salary of Rs 39.9 m in FY13! (as per annual report). Thus the bankers waiting for repayment of crores of rupees in dues were left to look like jokers.

While the government is yet to bring the promoter of Kingfisher to book, at least it has learnt some lessons. The deluge of bad loans in the corporate debt restructuring (CDR) cell has left the government convinced that many are cases of willful default by promoters. Hence the Finance Ministry is setting up a new CDR committee. One that can allow banks to enforce management change in case of willful default. The committee will also scrutinize cases of debt restructuring. In such cases banks will have to outline steps to turn around the companies.

In a country where both availability and cost of capital are constraints for entrepreneurs, wastage of the same by undeserving people is nothing short of a crime. Most importantly, willful default by entrepreneurs can lead to a systemic problem in the banking sector. The PSU banks, in particular, have become a victim of this malaise. With investor confidence shaken, the government will have to ensure that the CDR cell does not indulge more 'Mallya's for 'Kingfisher's.

Do you think the possibility of change in management in financially sick companies will act as a deterrent for willful defaulters?  

Financial Planning Process

Conventional Six Step process

1. Introduction Meeting- Gather your Financial Data
We meet to gain insight into each other. Gather data, establish goals and objectives. This initial meeting ask of projecting your goals or ask where you want to be in coming years.
2. Data Gathering- Identify your goals
Devise strategic solutions that enable you to use financial resources to achieve your lifestyle objectives. Collect comprehensive data on all aspect of your financial life. Here, emphasis is put on analyzing your situation, approach and accounts.
3. Gap Analysis- Identify financial gaps
At this stage, we identify financial issues and gaps created due to discrepancy of your existing and aspired goals. Outline clear course of action, set written recommendations and prepare solutions to match your goals. Large emphasis is put on identifying weaknesses, obstacles and conflicts.
4. Prepare a financial plan
Provide options that describe how to get there. Prepare a statement of advice, which sets out the strategies and recommendations that address your goals and information. It outline a valid pathway that would take you how you can get there where you have always proclaimed for. Evaluate alternatives, risks & opportunity costs.
5. Annual Review
Monitor and re-balance your portfolio periodically, review and revise your plan to ensure it stays up-to-date even in changing lifestyle. Review progress and update it accordingly.

6. Implementation & Financial |Action
   
• In this step of the financial planning process, you develop an action plan. This requires choosing ways to achieve your goals. As you achieve your immediate or short-term goals, the goals next in priority will come into focus.
  
• To implement your financial action plan, you may need assistance from others. For example, you may use the services of an insurance agent to purchase property insurance or the services of an investment broker to purchase stocks, bonds, or mutual funds.

Need For Financial Planning

- A well thought-out and prudently drawn financial plan: Allows you to reach your financial goals in a set time period. Once your goals are defined and the time period for achieving those goals is set, then it becomes easier to achieve it. Ensures better management of money. A financial plan will keep an account of every rupee spent or earned. This will help you spend wisely while optimizing your savings. Helps you understand your priorities and risk preferences and invest accordingly. Priorities in life change with time and along with it your risk taking ability. A financial plan enables you to take into account these changes and accordingly make changes in your investment portfolio. Helps you to fulfill various responsibilities in life. We all have various family responsibilities to fulfil in life. And, we need finances to perform them. A diligently drawn plan ensures that you have adequate money to discharge your responsibilities. Helps you manage your assets and liabilities better. Financial planning can help you to manage your liabilities better by keeping an eye on your income and expenses. When you plan well, there is less chance of borrowing irresponsibly. Similarly, you can build assets for yourself over a period of time with proper planning. Helps you take better and informed financial decisions in life. Financial planning helps you understand your financial position better. And, based on the knowledge of your existing financial situation, you will be better equipped to take decisions.

What is Financial Planning?

What is Financial Planning?

Financial Planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a house, saving for your child's higher education or planning for retirement. The Financial Planning Process consists of six steps that help you take a 'big picture' look at where you are currently. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.

The Benefits of Financial Planning

Financial Planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you pay off your mortgage faster or it might delay your retirement significantly. By viewing each financial decision as part of the whole, you can consider its short and long-term effects on your life goals. You can also adapt more easily to life changes and feel more secure that your goals are on track.

Who is a Financial Planner?

A Financial Planner is someone who uses the Financial Planning process to help you figure out how to meet your life goals. The Planner can take a 'big picture' view of your financial situation and make Financial Planning recommendations that are suitable for you. The Planner can look at all your needs including budgeting and saving, taxes, investments, insurance and retirement planning. Or, the Planner may work with you on a single financial issue but within the context of your overall situation. This big picture approach to your financial goals sets the Planner apart from other Financial Advisors, who may have been trained to focus on a particular area of your financial life.

Can you do your own Financial Planning?

Some personal finance websites, magazines or self-help books can help you do your own Financial Planning. However, you may decide to seek help from a professional Financial Planner if:       you need expertise you don't possess in certain areas of your finances. For example, a Planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances. you want to get a professional opinion about the Financial Plan you developed yourself. you have an immediate need or unexpected life event such as a birth, inheritance or major illness. you feel that a professional Advisor could help you improve on how you are currently managing your finances. you know that you need to improve your current financial situation but don't know where to start.

Be sure you're getting Financial Planning advice

The government does not regulate Financial Planners as Financial Planners; instead, it regulates Planners by the services they provide. For example, a Planner who also provides insurance transactions is regulated as an insurance agent. As a result, the term 'Financial Planner' may be used inaccurately by some Financial Advisors. To add to confusion, many Financial Advisors like accountants and investment Advisors can also offer Financial Planning services. To be sure that you are getting Financial Planning advice, check if the Advisor follows the six step process.

How to make Financial Planning work for you?

You are the focus of the Financial Planning process. As such, the results you get from working with a Financial Planner are as much your responsibility as they are those of the Planner. To achieve the best results from your Financial Planning engagement, you will need to be prepared to avoid some of the common mistakes shown above by considering the following advice:   Set measurable goals Set specific targets of what you want to achieve and when you want to achieve results. For example, instead of saying you want to be 'comfortable' when you retire or that you want your children to attend 'good' schools, you need to quantify what 'comfortable' and 'good' mean so that you'll know when you've reached your goals.     Understand the effect of each financial decision Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.     Re-evaluate your financial situation periodically Financial Planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your Financial Plan as time goes by to reflect these changes so that you stay on track with your long-term goals.     Start planning as soon as you can Don't delay your Financial Planning. People, who save or invest small amounts of money early, and often, tend to do better than those who wait until later in life. Similarly, by developing good Financial Planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.     Be realistic in your expectations Financial Planning is a common sense disciplined approach to managing your finances to reach life goals. It cannot change your situation overnight; it is a life long process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your Financial Planning results.     Realize that you are in charge If you're working with a Financial Planner, be sure you understand the Financial Planning process and what the Planner should be doing. Provide the Planner with all of the relevant information about financial status. Ask questions about the recommendations offered to you and play an active role in decision-making.

Common Mistakes in Financial Planning Approach

The following are some of the common mistakes made by consumers in their approach towards Financial Planning     Don't set measurable goals.     Make a financial decision without understanding its affect on other financial issues.     Confuse Financial Planning with investing.     Neglect to re-evaluate their Financial Plan periodically.     Think that Financial Planning is only for the wealthy.     Think that Financial Planning is for when they get older.     Think that Financial Planning is the same as retirement planning.     Wait until a money crisis to begin Financial Planning.     Expect unrealistic returns on investments.     Think that using a Financial Planner means losing control.     Believe that Financial Planning is primarily tax planning

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