Archive for the ‘investment’ Category

India on the move

This article was written by me for Sify.com on the event of the 60th birth anniversary of our nation. 6 years later we seem to be worse off than ever. Some part of the blame lies on the world financial crisis, but a large portion lies within lack of political will and business apathy.

Here is hoping that the next 6 years will see a robust change

 

2007 has been a momentous year for India. We have seen the stock markets rising and the dollar falling. Consumer spending and salary levels are never before heights. Today’s young Indian is earning a start salary that his father barely managed to before retiring.

India achieved 8.5% GDP growth in 2006, significantly expanding manufacturing. India is capitalizing on its large numbers of well-educated people skilled in the English language to become a major exporter of software services and software workers. Economic expansion has helped New Delhi continue to make progress in reducing its federal fiscal deficit. However, strong growth – more than 8 percent growth in each of the last three years (and over 9% in parts of the last year) – combined with easy consumer credit and a real estate boom is fuelling inflation concerns. The huge and growing population is the fundamental social, economic, and environmental problem. Here is a comparative picture of the growth of India’s GDP.

india graph

The 11th Plan

Sector              Growth rate                 Share of GDP
                          2002-07   1997-02     2002-07  1997-02

   Communications   15.0     17.14             2.3        1.7
   Manufacturing       9.82      3.68            16.7      15.3
   Agriculture            3.97     2.06             20.5      24.7

India is moving from an agricultural economy to a service economy surely but steadily. In relative terms, the decline of agriculture in the share of GDP from 24.7 to 20.5. That decline implies that services and manufacturing are gaining share and that implies that we are moving away from a subsistence economy to one in which we may have some hope of improving our lot.
Of course, as a developing economy, agriculture is the core of the economy.  If India is to ever develop. It is only very severely underdeveloped economies have high agricultural sector share of GDP. For instance Albania, Ethiopia, Mali, Nepal, Ghana — economies with agriculture accounting for a large share of the GDP. Australia, France, Germany, US — agriculture accounts for low single-digit shares of the GDP.

The Indian economy on the eve of the 11th Plan is in a much stronger position than it was a few years ago. After slowing down to an average growth rate of about 5.5% in the Ninth Plan period (1997-98 to 2001-02), it has accelerated in recent years and the average growth rate in the Tenth Plan period (2002-03 to 2006-07) is likely to be about 7%. This is below the Tenth Plan target of 8%, but it is the highest growth rate achieved in any plan period. While this performance reflects the strength of the economy in many areas, it is also true that large parts of our population are still living below the poverty line. The percentage of the population below the poverty line is declining, but only at a modest pace.  These problems are more severe in some states than in others, and in general they are especially severe in rural areas.

 

Oil- The master of the future

Petrol has dominated world economics for long and will continue to do so for the years to come. Oil has formed a large part of India forex outflow. It is however earning refining business which has been offsetting its import bills. In fact, during 2006-07, refined petroleum products formed the largest chunk of total exports overtaking the Gems and Jewellery sector.

The cost effectiveness of refining in India is drawing many global players here. This is because India is logistically well placed for refineries. Besides being a major market for crude oil and petroleum products, it adjoins major demand centres such as China. Also, crude oil from West Asia can easily be brought to refineries in India.

Of late, a number of players have evinced a keen interest in laying pipelines in the domestic market to supply gas to the consumers. For example, Gujarat State Petronet Ltd, a group company of the Gujarat State Petroleum Corporation, plans to connect all 25 districts of the state with 2,200-kilometre high pressure gas pipeline laid down across the state. Reliance will invest US$4 billion to lay a 1,386-kilometer pipeline from Andhra Pradesh to Gujarat. India is also one among the four countries which have the world’s richest gas hydrate reserves.

India ranks sixth in the world in terms of petroleum demand and by 2010, India is projected to replace South Korea and emerge as the fourth-largest consumer of energy, after the United States, China and Japan. The rising price of crude is of great concern to the growth of the Indian economy. India needs to step up its domestic exploration to produce substance instead of wisps of promise that it has been done till now.

The Forex concerns

In recent days the rupee-dollar exchange rate has been, on average, Rs 39.3 per dollar. A year ago it was 44.7. This means that the rupee has appreciated against the dollar by 13.7% in the last year. Put differently, for an Indian the average price of all American goods has fallen by 13.7% and, for Americans, goods from India have become more expensive.

Over the last year virtually all major currencies have been appreciating vis-à-vis the US dollar. The euro rose by 14.7%, the pound by 10.4%; the Canadian dollar by 23%, Sweden’s kroner by 13.7% – the same as the Indian rupee. Vis-a-vis all major currencies, outside of the US dollar, the rupee has changed very little. It is due to our high dollar exposure of our exports (especially software exports which has been driving the economy to a high) that the fall of the dollar has become a cause of concern.

The 3-D Advanage

As Mr Anand G Mahindra, Vice-Chairman and Managing Director, Mahindra and Mahindra, India said in a seminar, he reposed faith in the 3D advantages of India, Democracy, Demography and Durability. Democracy is a prerequisite to a healthy society, polity and economy. India’s demographic advantage is that it has the highest number of people in the working age group and this is going to continue for some time. Durability stems from the fact that India is a peaceful and stable nation despite many internal disturbances. He said that India has the second largest Muslim population in the world peacefully coexisting with the Hindu majority.

Some facts to chew on

  • India is the world’s fourth-largest economy.
  • By 2034, India will be the most populous country on Earth, with 1.6 billion people.
  • India’s middle class is already larger than the entire population of the United States.
  • One out of three of the world’s malnourished children live in India.
  • India is home to the biggest youth population on earth: 600 million people are under the age of 25.
  • India just edged past the United States to become the second-most-preferred destination for foreign direct investment after China.
  • In 1991, Indians purchased 150,000 automobiles; in 2007, they are estimated to purchase 10 million.
  • By 2008, India’s total pool of qualified graduates will be more than twice as large as China’s.
  • By 2015, an estimated 3.5 million white-collar U.S. jobs will be offshored.
  • India is the largest arms importer in the developing world.
  • American corporations expect to earn $20 to $40 billion from the civilian nuclear agreement with India.
  • In 2007, there are 2.2 million Indian Americans, a number expected to double every decade.
  • Twenty-nine percent of India’s population speaks English – that’s 350 million people.
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The Investment Demons

The twin demons of fear and greed can destroy the soundest of investment strategies.  No we are not on a moralistic religious talk here. We are taking of two all pervading invaders who destroy our investments.

Be satisfied – aim higher – two contrary ideas which are drilled into the Indian psyche. Both of them are at a constant battle. The virtue of being satisfied with little has been drilled into us and yet very contrarily, we also taught to aim higher. To seek more than what we have, to be the best.

In the investing world, one often hears about the consensus between value investing and growth investing. And although understanding these two strategies is fundamental to building a personal investment strategy, we are often swayed by ‘hot tips’ and ‘insider information’ that can change our life. All the common sense and fundamentals analysis flies out of the mind replaced by greed – shinning and inviting.

 invest

Greed Governs

Most of us have a desire to acquire as much wealth as possible in the shortest amount of time and why not? Unfortunately this may take us to the level of being imprudent in our investment decisions.

This get-rich-quick  attitude makes it hard to maintain gains and keep to a strict investment plan over the long term.

Beat the greed

Any prudent investment approach should contain some form of an exit strategy; simply put how you plan on getting out of the stock you hold.

This would be one way to avoid greed, have a set price at which you intend on selling the stock, WALK AWAY with the money in your pocket and move on to the next investment. It sounds like a simple doable idea but one tends to ignore this essential strategy when the market is on the upswing. Holding on for a little higher returns may often cost us too much.

Fear Festers

When stocks suffer large losses for a sustained period, the overall market and the individual investor can become more fearful of sustaining further losses. But being too fearful can be just as costly as being too greedy.

Fear can make you take panicked decisions which do not match with your long term investment strategy. Getting swept up in the prevailing fear of the overall market by switching to low-risk, low-return investments can set you back by years in your financial planning.

Countering fear

The best way to counter fear is to have a financial plan in place and keep the eye on the goal. It is also important to choose a suitable asset allocation mix.  The herd mentality will only help keep the head down and give grass to gaze.

‘We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.’ – Warren Buffet

Building a financial plan for your child

When it comes to raising children, money is limited, and demands far exceed the supply. Your child, being the centre of your universe, is going to drive a lot of the financial decisions of your household.

From the moment your child is born and even before, if you consider the doctors visits and preparations for the arrival of the child it’s at least 20-25 years before your child can start earning, and is financially independent.

Bringing up a child takes more than can you imagine. Babies tend to outgrow things even before you buy them. As they grow older, peer pressure works not just on the kids but also on the parents. Isn’t it you who also want your kids to wear branded clothes or join a class that is popular? While it is laudable that you want the best for your child, it’s expensive too.

The cost of children’s education is one of the largest expenses that parents face so it’s crucial to start saving as soon as possible. Just the college years will cost you anywhere between Rs. 6-12 lacs depending on the course your child does and her/his   spending habits.

So on a rough estimate an upper middle class family would spend at least Rs.20 lacs on the child’s upbringing, education and to ‘settle the child’.

This estimate is at current levels of cost of living. We have not yet factored in the raging inflation.

Planning for your child’s education in the same way you would plan for other big life events will help enable you to secure your preferred education choices. While education can amount to one of the highest expenses you will incur for your child, it can provide the means for them to pursue a dream, prepare for future success and fulfil their potential.

Where to invest

Financial planning for children should start as early as possible.

There are various ways to save for your child

  • Savings accounts and fixed deposit accounts
  • Insurance plans for children
  • Mutual funds for children
  • Investing in the stock market for long term gains
  • Informal investments like chit funds, buying gold, property etc.

No matter which is your preferred avenue of investment, you need to ensure that you set goals and work steadily toward them.

This article first appeared in Moneylife magazine