RBI Annual Monetary Policy Review

The Reserve Bank of India is scheduled to meet for an annual review of the monetary policy on May 3, 2011. It is expected that RBI would raise repo and reverse repo rates by 25bps each.

The Annual review will be conducted in the scenario where we have high crude prices and commodity prices, surge in core inflation, domestic activity which signals a slow down, subdued investment activity and global uncertainties. The monetary policy will face severe dilemma; however RBI is expected to focus on rising inflation.

The Inflation figures for the month of March touched the figure of 9% in March, much above RBI’s projection.

The Industrial Production figures are also indicating a slowdown. The Corporate order book also depicts the same.

Yet currently it seems inflation situation outweighs the growth concerns. It is expected that the Central Bank may continue with the gradual tightening, raising both the Repo & Reverse Repo by 25 bps, accompanied by a hawkish statement.

As the full impact of the previous tightening is yet to take effect and the industrial activity slowing it is unlikely that the Central bank may raise the policy rate by 50bps

Do you want to track commodities ?

A must visit site for people who want to track commodities.

Before investing in commodities we should note that, like all investments they have wide price fluctuations over time and it’s impossible to predict which commodities will be in favor and which will be out of favor and for how long.

To illustrate those price fluctuations, U.S. Global Investors produced what it calls the Periodic Table of Commodity Returns. That table shows how the price of 14 commodities have ebbed and flowed over the past the decade, and illustrates the principle of mean reversion — the concept that returns eventually move back towards their mean or average.

For instance, the table shows that palladium was out of favor in 2008, falling 49.29% that year, but in favor the following two years, rising 118.07% in 2009 and then 96.6% in 2010 & Lead was out of favor in 2008 falling 62.52% but gained 152.37% in 2009.

Let’s try to catch the trend for the year 2011.

http://www.usfunds.com/research/the-periodic-table-of-commodity-returns/

Warren Buffet's Entry in India - Insurance sector is just a begining

Chairman and CEO of Berkshire Hathaway Warren Buffett, is in India. He has made a quiet entry into the Indian market through his company Berkshire India, a wholly owned subsidiary of Berkshire Hathaway. The company received approval from India’s Insurance Regulator to sell auto insurance products as a corporate agent of Bajaj Allianz General Insurance. Berkshire also plans to enter the India reinsurance market. At present there is only one re-insurer in domestic market i.e the Government owned General Insurance Corporation.

The 80-year-old billionaire investor announced in Bangalore  to further grow his empire Berkshire, whose market cap stands at a staggering USD 200 billion. “Berkshire is in the acquisition hunt for good profitable businesses,” he said but refrained from spelling out an acquisition strategy that he will adopt in India. During his first brush with Indian media, Buffett had said India was a logical investment destination and the country was too big to be called an emerging market.

The ‘Oracle of Omaha’ brings me hope that India will now be discovered as one of the best destinations for Investment. The various news making rounds in the analyst circle is that, he may be eyeing the retail market of India which is expected to grow from US $ 392.63 billion in the year 2011 to US $ 674.37 billion in the year 2014 as per BMI India Retail Report.   

Is your Loan a Good Loan ?

Are you in a Debt trap? Do you swipe you credit card often? Are you lured by the low interest personal loans offered by the Credit card?

 

Let’s distinguish between the good loans which you should opt for & bad loans which you should avoid.

What is a Good Loan ?

 

A Loan that creates a productive asset or enhances your earning capacity is considered as a good loan.  The loan should lead to a creation of an asset, and secondly the quantum of the loan should be within the repayment capacity of the borrower.

 

Home Loan : Home loan is a perfect example of a good loan. House is a revenue generating assets which also appreciates over a period of time. They are available generally at lower interest rates and also have added advantage of Tax deductions.

However some borrowers are tempted to prepay the loan when they receive some lump sum amounts, which is not always a good idea. Let me tell you why? The Interest portion on the long tenure loan in the initial years is very large compared to the principal repayment. Currently if you are paying an EMI of Rs. 20K after five years at an inflation rate of 7% the amount will be worth Rs 14K and secondly with increase of your income your EMI will be a smaller portion of your total income

Invest the lump sum available with you is a better yielding investment for fulfilling your another financial goal.

Vehicle / Auto Loan :

 

Unlike Property here the asset i.e the vehicle you buy depreciates in value. You should take the loan for a shorter duration say for 3 to 5 years not more than that. Try to negotiate the processing fees levied while taking the loan.

 

Loan against property

 

The purpose for which you have borrowed the Loan will decide whether the loan is a good or a bad. If the loan amount generates a better return and leads to a creation of an asset it can be termed as a good loan. Nevertheless it is a better option compared to a personal loan or a credit card loan which you should avoid in all circumstances.

 

Bank Overdraft against Fixed Deposit

 

If you need a loan for a shorter duration your Bank FD’s can help you out. The Bank will charge 1-2% extra for this facility and you need not break your FD before maturity secondly the interest will be charged on the amount you have actually withdraw.

Bank Overdraft against Fixed Deposit

 

If you need a loan for a shorter duration your Bank FD’s can help you out. The Bank will charge 1-2% extra for this facility and you need not break your FD before maturity secondly the interest will be charged on the amount you have actually withdraw.

 

Credit Card Loan  

 

The Credit card loans are available fast and simple but they charge usually a very high rate of Interest. Make timely payments for your credit card and I would say just avoid taking a credit card loan.

 

Finally consider the following before taking a loan :

Good Loans increase the value of your assets

Compare the different options you have before finalising a loan

Compare the rate of different banks and also go through the terms and conditions of the loan

Don’t borrow to invest in the stock market

Instead of taking loans for fulfilling your desires, plan systematically to achieve your goal on time.

Libya declares Immediate Cease fire - Crude falls

Libya's foreign minister announces an end to military operations hours after the UN Security Council backs no-fly zone.

Libya has announced it will halt all military operations in the country following a decision by the United Nations Security Council to back a no-fly zone over the country.

The Libyan foreign secretary also said his government was interested in protecting all civilians and foreigners in a statement televised on Friday.

He said Libya was disappointed over the agreement to install a no-fly zone.
Source : http://www.marketwatch.com/story/libyan-government-calls-a-ceasefire-reports-2011-03-18?dist=beforebell

Yen's Surges to record high

The Japanese yen has hit its strongest level against the US dollar since the end of World War II.


The exchange rate reached 76.25 yen to the dollar during US trading hours y’day, though by Thursday afternoon in Asia it was back at 79.14 yen.

G7 finance ministers are to hold a conference call to discuss how to deal with global market volatility. The G7 is a group of the world's seven richest nations, including the US, Japan, the UK and China.  Analysts expect the G7 ministers to give Japan the go-ahead to intervene in currency markets to stabilise the yen.

With Japanese rates already at almost zero, the central bank cannot cut interest rates in order to weaken the yen against other major currencies, such as the dollar or euro where interest rates are also close to zero. The Bank of Japan faces a policy conundrum.

Analysts think the central bank may now go a step further and intervene directly in markets to stem the currency's rise by selling yen and buying dollars and other foreign currencies.

Repatriation

Japan's currency has been strengthening steeply since Japan was devastated by a magnitude 9 earthquake on Friday. A rise in the yen is seen as undesirable as it undermines the competitiveness of Japanese exporters.

Analysts have been blaming the strengthening of the yen on the repatriation of assets and foreign currency by Japanese insurance firms.

Other Japanese investors also own large holdings of foreign currency assets.

During periods of volatility - such as the 2008 financial crisis - investors responded by repatriating these assets, pushing up the yen's value, and thereby cementing its status as a haven currency.

Source :http://www.bbc.co.uk/news/business-12768098

Mirae Asset India – China Consumption Fund

Consumption Story

Post the 2008 financial meltdown, the world experienced sharp drop in economic growth, the hope of recovery in the world was kept alive by China and India. China and India have emerged from the crisis relatively unscathed. These two economies were protected as a result of their burgeoning local consumption. As these two economies are roaring back to their pre-crisis growth rates, the domestic consumption by people and the government helped the companies that are in the consumption arena to have good revenue and profit growth in the coming years. So, as to capture this profit trend to the investors, the Mirae AMC has come out with the MIRAE ASSET INDIA-CHINA CONSUMPTION FUND.

Salient features of the fund

This fund will invest a major portion (65%-90%) of its assets in Indian companies which target the domestic consumption sector in India. This asset allocation has been done to let the investors avail the equity fund tax benefit.

This fund will also invest 10%-35% in Chinese companies that target the domestic consumption sector in China. Liquidity in the fund is taken care by an allocation of 0%-25% in the money market instruments. This fund is not a fund of funds and will directly invest in Chinese securities.

Consumption category is a broad category and includes sectors like FMCG, consumer durables, auto, telecom, banks etc. The products and the services which are used by the common man can be considered as sectors focusing on the consumption side and this is applicable to both the countries.

Why the euphoria on domestic consumption in India and China?

According to the projections by Price Waterhouse Coopers; the Chinese and the Indian economies are expected to double by 2020. According to the same estimates, China is expected to become the largest economy in the world, overtaking US by 2020 and India is expected to overtake the Japanese economy in the next 2-3 years. By 2050, China will be the top economy in the world followed by India.

Projections of economic growth of India, China, US and Japan up to 2020

The rapid economic growth in these two countries will increase the number of middle class people in both the nations. According to a research paper published by Homi Kharas and OECD

India will have the largest middle class in the world by 2050 followed by China.

Global Middle class share from 2000 to 2050

The rising GDP and increasing middle class would mean more money in the hands of the middle class. With more money, they would have a higher disposable income which would in turn increase the consumption of basic amenities.

According to ENAM’s estimate organized retail, Air conditioners, Home Loans and cars sales will have more than 20% CAGR from 2010 to 2020. Two wheelers, packed foods, Cable and DTH and refrigerators sales will have a CAGR of more than 10% from 2010 to 2020.

With higher consumption from the masses, the companies focusing on delivering these products and services will thereby, benefit from higher revenues and profits.

Our take on this NFO

This fund offers a unique opportunity to Indian investors to profit from the rise in domestic consumption in India and China.

The fund although carries risk of exchange rate fluctuations due to investments in China, the exchange rate risk is low because at least 65% of the assets would be invested in Indian companies. So, we advise the investors to allocate a maximum of 5% of their equity portfolio in this fund as it provides a good diversification allocation.

New Fund Offering Details

NFO Closes  on 23rd March 2011

Minimum Investment Rs. 5000

Taxation  : Treated as an equity fund

Benchmark

MSCI India Consumption Index (65% ) + MSCI China Consumption Index (35%) (Price in INR)

(Source: The emerging middle class in developing countries by Homi Kharas, OECD)

Calling for a Marshall Plan in the Arab World - Nouriel Roubini

Nouriel Roubini the Chairman of Roubini Global Economics is of the view that the unrest in the Middle East can have powerful economic implications, particularly as it increases the risk of stagflation, a lethal; combination of slowing growth and sharply rising inflation.

The Unrest in the Middle East have historically been a source of Oil price spikes, which have triggered three of the last five global recessions.

He says further that we don’t know yet whether political contagion in the Middle East will spread to other countries. The turmoil may yet be contained and recede; sending oil prices back to lower levels. But there is a serious chance that the uprisings will spread, destabilizing Bahrain, Algeria, Oman, Jordan, Yemen, and eventually even Saudi Arabia.

The transition from autocracy to democracy in the Middle East is likely to be bumpy and unstable, at best. He suggests a bold new assistance program should be designed for the region, modeled on the Marshall Plan in Western Europe after WWII, or on the support offered to Eastern Europe after the collapse of the Berlin Wall. Financing should come from the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, as well as from bilateral support provided by the US, the European Union, China, and the Gulf states. The goal should be to stabilize these countries’ economies as they undertake their delicate political transitions.

For more visit :

http://english.aljazeera.net/indepth/opinion/2011/03/2011315102938604448.html

RBI Policy 17th March 2011

The RBI in the mid-quarter review of monetary policy on March 17, 2011 is expected to raise policy rates by 25 bps each.

The Hike in the policy rates will be despite some moderation in IIP and slowdown in Investment growth as currently Inflation is the main concern for the Central Bank.

Headline Inflation remain at elevated levels and, above that the drivers of inflation have changed from cyclical food articles (vegetable, fruits etc.) to non-food manufacturing articles, reflecting demand pressures in the economy. Additionally commodity prices (esp. Oil) and non-food articles prices have also accelerated on account of external factors.

RBI is likely to raise repo and reverse repo rates by 25bps accompanied with a hawkish statement as Inflation concerns far outweigh the growth concerns. 

India Attains a Very good grade in the Global Investor Study conducted by Morning Star

It’s really proud to say that India has been ranked B in the Morning Star Global Funds Investor Experience Study

India has scored a B Rank which is considered a High grade for an Emerging market.

The Study measures the experience of mutual fund investors in 22 countries in North America, Europe, Asia and Africa. The Study also analyses and compares mutual fund market places, highlighting their strengths and weaknesses. The global study is intended to help investment companies, distributors and regulatory bodies worldwide to continue focus on and enhance best practices for investors.

The Research evaluated countries in four categories: Regulation and taxation, Disclosure, Fees and Expenses, and Sales & Media

Below are the country grades, from highest to lowest scores in alphabetical order.

Singapore   A

United States A

Thailand  A-

India B

Netherlands B

Taiwan B

China B-

Sweden B-

Canada C+

France C+

Germany C+

Japan C+

UK C+

Australia C

Belgium C

Hong Kong C

Italy C

Norway C

Spain C

South Africa C-

New Zealand D-

Singapore and United States were identified as the best markets on the criteria as investor protection, transparency, fees, taxation and investor distribution.

New Zealand scored the worst.

The main points noted by the survey on India are as below:

1. India is not afraid to be different – being the only country in the survey to have banned fund’s front end load charges           
2. India has an excellent Disclosure and is one of only two countries where portfolios are typically disclosed monthly.
3. Sales and Media practices are also good. Indian investors enjoy an open sales system, as the vast majority of fund distributors offer the choice of multiple fund providers. Low investment minimums make Indian funds widely accessible to middle-income buyers. For its part, the media does well in reporting on a daily basis about mutual funds.
4. India’s main drawback is high fund expenses. India is one of only four countries in this survey with equity-fund annual expenses that exceed 2%, meaning that Indian investors pay double what those in the lowest-cost countries are charged. Indian fixed-income and money-market funds are not cheaper.
5. Indian Regulation is a mixed bag. Indian investors face capital controls that limit their ability to invest in foreign securities. On the other hand, India has been actively modernizing its fund laws, and the regulator is proactive in identifying violators of securities laws.

The Study gives a very good impression of the Indian Mutual Fund Industry which is in a transition phase and needs to do a lot ahead.

The above study gives me the confidence that foreign investors will start investment in India in a big way, once the norms for the same are finalised.

IIP Data January 2011 at 3.7%

Industrial growth continued to be sluggish, improving only marginally to 3.7 per cent in January against 2.5 per cent December 2010 and 16.8 percent in January 2010.

Some economists attribute the low numbers to the high base of last year, but others do not agree. However, all point out that industrial growth is not as bad as is shown by these numbers. In January last year, industrial growth stood at 16.8 per cent.

Economists say that other pointers to the economy like exports, non-oil imports and corporate results indicate healthy industrial activities.

India's exports continued to be on the uptrend and expanded by 32.4 per cent to touch $ 20.605 billion in January 2011 from $ 15.557 billion in the same month of 2010. Non-oil imports during January 2011 were estimated at $ 20.734 billion, which was 23.8 per cent higher than non-oil imports of $ 16.754 billion in January 2010.

The slow manufacturing growth could be attributed to volatile capital goods whose production contracted 18.6 per cent in January against huge 57.9 per cent growth a year ago. In December also, capital goods output declined 13.7 per cent.

The consumer goods category continued to be robust, growing 11.3 per cent in January against a mere 0.4 per cent a year ago.

India in Top 10 manufacturers list

India was amongst the top 10 manufacturers in 2010 and together with Brazil and China accounted for a third of the world manufacturing output, up from one-fifth 10 years ago, said a United Nations report .

 
"India is listed as one of the top 10 manufacturers of the world in 2010," the international yearbook of industrial statistics 2011, published by the United Nations Industrial Development Organisation (UNIDO) said.

 
India along with other leading developing economies such as Brazil and China showed strong performance in economic growth in 2010 and the manufacturing value added of all these countries grew by over 10% last year, the agency said. 

The share of these three countries in world manufacturing output reached 32% compared to 20% 10 years ago, the report, released in Vienna on Thursday, added.

 
World manufacturing value added, or MVA, rose 5.3% in 2010, as per the agency's estimate. 

The MVA of industrialised countries was up 3.4% in 2010. 

India topped developing countries (excluding China) in production of textiles, chemical products, basic metals, general machinery and equipment, and electrical machinery. 

It overtook Brazil in the production of motor vehicles and now ranks second among developing countries after Mexico. 

However, its Asian competitors Thailand, Malaysia and the Philippines are ahead in the production of electronic goods such as computers and office equipment, radio, television and other communication equipment.

Uncertain Times - No Not again

http://www.marketwatch.com/story/asia-stocks-sink-on-mideast-tensions-oil-prices-2011-03-02?amp;siteid=rss&SiteId=djm_HAMWRSSGMktgsH

FM Allows Foreign access - Gives MFs reason to smile

http://www.business-standard.com/india/news/fm-allows-foreign-access-gives-mfs-reason-to-smile/426851/

Sundaram Capital Protection Oriented Fund Series 2 - 5 years

How it works for you

• Fixed deposits may offer principal protection, but returns are often so low they barely keep up with inflation. Equity investments have historically offered higher returns, but they can pose a greater risk to your capital. Capital protection orientated funds offer capital protection orientation and capital gain through a mix of debt and equity in the portfolio

• It is a Fund that aims for deposit plus returns (Generating more returns than a five year fixed deposit), without loosing sight of capital protection orientation.

• Capital Protection Orientation: Endeavours to preserve capital by investing sufficient funds (about 70%) in fixed income securities so that, with the interest, it grows back to your initial capital value over a 5-year period. These investments will be made only in the highest rated (AAA) papers and in Government securities. They will be held until their date of maturity so that even if interest rate drops in the next five years it won't affect the scheme’s objectives.

• Capital  Gain : Generates  capital  appreciation  by investing  a  part  of  the  funds  (about  30%)  in  equity. The  equity  portion will  be invested  primarily in  stocks forming part of the S&P CNX 500 Index. Consequently it will be a multi-cap equity portfolio with a mid- and small – cap emphasis.

• Highest CRISIL Rating: AAA(so) :This rating indicates the highest degree of certainty regarding timely payment of face value of the investment to investors.

• If you are new to equity investment this is an excellent avenue to participate in the equity market with the comfort of capital protection orientation – especially suitable for first-time investors and those with a conservative mindset.

Issue Opens on 15.02.2011;

Closes on          01.03.2011