2012: India with a low powered torch!

With a couple of articles I would briefly sum up the prospects India holds for its investors in the upcoming year objectifying it in an appropriate manner. This is the first one giving a brief recap of the country's economic scenario this past year.

Indian Economy 2012. An abstract: 

"Submerged in dreads"

The year started with a depreciating rupee value against the dollar which seemed irrepressible in the beginning. Consequently, it was followed by gradual drying up of capital inflows for the Indian Economy. 

The budget presented by Mr. Pranab Mukherjee proved even more detrimental for the investor sentiments with retrospective tax amendments, the proposal of General Anti-Avoidance Rules(GAAR). 

The environment further deteriorated with downgrade threat posed by various credit rating agencies, profoundly S&P due to high Fiscal Deficit and Current Account Deficit.

Adding to it there was YET another corruption scam, that of coal block allocation also known as 'coalgate scam'. This contributed in the Indian power sector getting crippled. 

Growth story was completely sent down the trash. The scenario had common man battling with rising prices and the corporate India struggling with severe capital growth erosion due to lack of investments. Not to forget the significant loss of confidence of the world economy in India and its business environment.  

"Wriggling off the odds"

The second half of the year was supported by a series of bold decisions by the government pushing up some major reforms. To curb the rising fiscal deficit the government revised its expense on subsidies as it raised the prices of diesel and restricted supply of subsidized LPG.

The most critical and much awaited decision was opening up of retail sector by raising FDI upto 51%. Prospective corporations such as Walmart, IKEA can lead a new generation of much needed investments into our economy. Well that stands out to be the main purpose of the reform and the debate on its pros and cons is going to be around for quite long. 

The other reforms include relaxation of FDI in aviation which has been another ailing sector of the economy.  Upto 49% investment by a foreign airline carrier has been allowed. FDI cap in broadcasting sector was raised to 74%. Last but not the least the banking bill was passed which enables RBI to provide licence to more companies willing to enter the banking sector thereby raising the notion for inclusive growth and enhanced banking services for rural India. 

Looking at the big picture, after reaching new lows due to policy paralysis and political roadblocks, quite much of the road has been laid for better expectations from Indian economy in 2013. And among all the political disarray the biggest challenge that lies ahead is of implementation.   

With all the darkness around lets see where the newly found torch of promises and hope takes us. 

Scenario Sum up: Q1FY2012

Back after a period of hectic training of mine, we get into the most relevant matters concerning the economy.

Here with this post i would like to sum up with all the factors that engulf the current scenario.

Some positive cues are as follows.
Most investors are surprised at the way the Indian market bounced back in the last few days of June this year; actually India participated in a global bounce that was triggered by the Greece vote of austerity measure being passed on June 22, 2011. Global investors’ fears of European crises have receded and the risk-averse investors have reallocated funds in risky assets. This phenomenon is coinciding with certain factors in our domestic environment that leads one to believe that the bounce may continue for a while. Not to mention, foreign investors have bought Indian equities since June 23rd for every single day till July 5, totaling investments of close to $1.5 billion.In the second half of the year, global investors may re-start deploying funds in India due to its under-performance and correction. India no longer looks expensive to them.

To top it up the government has started taking tough but desirable measures like fuel price hikes and sending the right signals to the investor fraternity like clearing the Cairn-Vedanta deal. Right kind of noises are also coming on opening up of foreign direct investment in retail, especially after the finance minister along with some of his policy chieftains returned from his annual convention with policy makers in the USA. The ministerial panel may meet this month to consider clearing this proposal.

Some negative cues mainly driven by the regulatory measures of the government posing much of a menace are as follows.
The case in point is Coal India.First it was the talk about removing the free auction quota (10% of production sold at lucrative spot rates) due to pressure from the power ministry.Many investors sold out at much lower values to avoid damage from such a move. But alas, the government changed its stance and the stock appreciated by over 20% in a short period of time.
The media reports indicate that the group of ministers has approved new Mines and Minerals Bill that is likely to get introduced in the monsoon session of the parliament. As per the broad contours of the bill, the coal mining companies would have to share 26% of their profits with local population. In non-coal mining companies, it would have to share 100% of royalty paid with local population. Many stocks have been hit by this news with Coal India losing close to Rs20,000 crore of market cap in a single day.
Both Oil and Natural Gas Corporation (ONGC) and GAIL lost close to 15-20% of market cap after the ad hoc increase in share of the subsidy burden on upstream companies to 38% for Q4FY2011.

In the past, telecommunications (telecom) services companies have also faced the brunt of constant regulatory tangles. The regulatory and policy issues are also leading to a slowdown in retail investments in domestic institution, mutual funds and insurance companies. This leaves the market at the mercy of foreign investors with little ability of the domestic funds to absorb the selling pressure.

Risk factors being driven by Crude oil, all the other indicators are pointing to the direction that the market momentum that has turned buoyant may remain so for some time in the medium term after which all eyes will be on the April-June quarter results.
Also with the global slowdown persistent enough the risk factors for IT and BPO firms hold up to a danger level.

My take-> The real winning investment will be in those companies which want to scale up by catering to the Indian market.

Gold vs Silver : Current prospects

They are various contexts for comparing gold with silver, I put it here pointwise-

1. People generally prefer silver because they say it has a greater multiplier than gold or a better investment potential. In general if it is considered that somewhat nearly silver has a multiplier of 11 to l, whereas gold will only multiply at a rate of 5 to 1, it means that using arbitrary numbers of RS50 per 10grams for silver and Rs.5000 per 10grams for gold, silver could reach Rs550 per 10grams (Rs50 per 10grams times 11 = Rs550) and in the same time gold could reach Rs25,000 (Rs5000 per ounce times 5 = Rs25,000). So thats how the multiplier gives in a fair advantage to silver. We may have a greater profit percentage with silver.

2. Also silver has much greater industrial demand than gold. Silver which is an industrial precious metal is used in cell phone cameras computers and most of the IT gadgets. Also due to price of gold being too high it is convenient for most of the industries to go with silver as a substitute.

3. Also silver tends to be consumed rather than accumulating as a store of wealth like gold. So there is much greater availability of gold to silver (above ground) at any given point – as much as 80 times more. Some market observers point to the smaller volume in silver investment compared with that of gold. So thats kind of a disadvantage with silver with respect to volume.

As per analysis the price of silver has increased by 30% as compared to that of 17% for gold since Feb’2010.

U may also try the following link for more information-
http://www.getmoneyrich.com/which-is-better-gold-or-silver-investment/

CPI, WPI and their comparison

CPI (Consumer Price Index)

CPI is a statistical measure of a weighted average of prices of a specified set of goods and services purchased by consumers. It is a price index that tracks the prices of a specified basket of consumer goods and services, providing a measure of inflation. Under CPI, an index is scaled so that it is equal to 100 at a chosen point in time, so that all other values of the index are a percentage relative to this one. Most of the major economies like US, UK, Japan, France, Singapore, and China have selected CPI as its official barometer to weigh its inflation. There are 8 groups in which CPI is used. They are: education, apparel, foods and beverages, communication, transportation, recreation, housing, and medical care. Other services like school and government registration fees and electricity and water bills are sometimes counted as well.

WPI (Whole-sale Price Index)

In this method, a set of some commodities and their price changes are used for the calculation. WPI is calculated on a base year and WPI for the base year is assumed to be 100. The data of wholesale prices of all these commodities in the base year and the time for which WPI is to be calculated is gathered. Then the WPI of a certain commodity is calculated. The overall Wholesale Price Index is the weighted average of individual WPI figures. Commodities are given weight-age depending upon its influence in the economy. India is amongst the few countries of the world, which selected WPI as its official scale to measure the inflation in the economy. The WPI can be established using the status of the five groups in basic human commodity namely: manufacturing, agriculture, quarrying, mining, and in the export/import industry.

Now the comparison

WPI-
1. Measure of temporal price change of wholesale transactions of all commodities in the country.
2. The weights of items have been assigned in proportion to their share in total value of transaction (output) in the economy.
3. Measures Inflation at each stage of production.

CPI-
1. Measures the average price of consumer goods and services purchased by households.
2. Weights are assigned in proportion to their share in the consumption expenditure of family of industrial workers in the selected centers.
3. Measures Inflation only at the final stage of production.

To put it in a very simpler way in which the majority could understand, Wholesale Price Index is the middle point of all the prices that the merchants pay for certain goods or services from the manufacturers or traders. While the Consumer Price Index, on the other hand, is also the middle point of all the prices that the consumers, homeowners and private sectors have paid for particular products and services.

Markets today : 11.05.11

Indian markets ended rangebound session on a positive note as buying activity emerged across the board with realty, metals and auto in the lead. Capital goods space ended marginally in the red.

Bombay Stock Exchange's Sensex ended at 18584.96, up 72.19 points or 0.39 per cent. The 30-share index hit a high of 18622.44 and low of 18454.93 in trade today.

National Stock Exchange's Nifty closed at 5562, up 20.75 points or 0.37 per cent. The broader index touched a high of 5574.70 and low of 5525 intraday.

BSE Midcap Index was up 0.56 per cent and BSE Smallcap Index moved 0.73 per cent higher.

Amongst the sectoral indices, BSE Realty Index was up 1.40 per cent. BSE Metal Index moved 1.01 per cent higher and BSE Auto Index advanced 0.95 per cent. BSE Capital Goods Index was down 0.03 per cent.

Hero Honda (3.31%), DLF (2.46%), Tata Motors (1.85%) SBI (1.78%) and Reliance Infrastructure (1.48%) were the major Sensex gainers.

NTPC (-1.86%), Tata Power (-1.39%), ONGC (-1.30%), Maruti (-1.14%) and L&T (-0.98%) were the top losers.

Market breadth was positive on the BSE with 1612 gainers against 1192 losers.

Economy Hapless : RBI Helpless : Govt Complacent

What we have here is a short cover up of views and perceptions of an expert panel including Lord Meghnad Desai, Professor of Economics at the LSE, UK, TN Ninan, chairman of the Business Standard, well known economist Bibek Debroy and from R Seshasayee, executive vice chairman of Ashok Leyland.

As we know Recently the RBI increased the interest rates by 50 basis points which is double of what the market had anticipated. This action was gravely condemned by the panel and was considered excessive and uncalled for. According to Mr. Debroy it is not going to help because the kind of inflation we have has nothing to do with monetary policy instruments. There are other reasons for that. And it will only achieve nothing but a lower rate of growth. Overall it is considered to be a fundamental mistake.

Mr.Ninan ahd two points to make on this matter-
One, No one has focused attention on the fiscal deficit. You have had very low inflation up to 2006 and very moderate inflation up to 2008. You had high inflation over the last 3 years and those were the 3 years, in which fiscal deficit on average has been close to 6% of GDP. In the previous 3 years, the fiscal deficit was only 3.5%. So, you have upped the government’s deficit. You have pumped in more money into the system and you are expecting the RBI to control it. I think the problem lies with the government. Second, we have inflation coming from high global oil prices and high international commodity prices. Domestic commodity prices are no higher than international prices. So, there is nothing that monetary policy can do to correct this.

So, that means the government, rather than the RBI has failed to understand the real causes of inflation. It’s also come up with the wrong remedies for tackling it and if international food and oil prices stay high, the pressure on inflation will continue regardless of what the RBI has done.

According to Mr.Desai, what is important is that inflation is a government failure. It is a failure of supply side policies and it has been persistent for all the two years that UPA II has been in power. The budget completely failed to address a question of inflation. The deficit is very large and 36% of revenue is paid in interest on government debt. It's really a very serious problem and the complacency on part of the Ministry of Finance is shocking.

Oil Prices tend to revamp : US economy prospective

The crude is indicating a return to a lower level on cost basis. As speculated by many analysts, the oil price may further go down.

According to Jonathan Barratt, MD of Commodity Broking Services, it all started with some fundamental news and people questioning the resolve of the recovery that US has had. On Wall Street, the Dow and the S&P 500 fell about 1% as energy shares slumped with the price of oil. This seems to be a result of lowering of demand powered by worries about the job market ahead of Friday's key employment report. On the other hand, he pointed that if we get a resolution on Libya then all of sudden we are going to see 1.4 million barrels coming on to the market. When you look at that type of fundamental news, just on the horizon, you could probably suggest that crude could actually trade all the way down to USD 80 a barrel.

The decline of $9.44 per barrel, or 8.6 per cent, brings the week's loss for oil to $14.13, or 12.4 per cent. Other commodities like silver and cotton have plunged as well. Oil was continuously being considered to be at much a higher level than it should be. Oil rose 35 per cent from mid-February through the end of April. As it climbed above $100, economists warned that high fuel prices were taking a toll on the US economy. Gasoline demand starting falling in March as motorists paid more at the pump; that trend was reinforced by industry and government studies released this week. This led most of the oil investors to go for the exit leading to a drop in its stock value.