Thursday, September 19, 2013
Party@EMS
Moneycontrol News : The party's on in emerging markets-here's why
Full News: http://bit.ly/16KvNcf
Is deep correction expected
Moneycontrol News : Fed move may have set stage for deeper correction
Full News: http://bit.ly/18CQyDo
Wednesday, September 18, 2013
Identifying risk in fixed income securities
Moneycontrol News : Identifying risk in fixed income securities
Full News: http://bit.ly/14kMOsF
What brokerages are saying on Fed's no-taper move
Moneycontrol News : What brokerages are saying on Fed's no-taper move
Full News: http://bit.ly/1a5ZNPs
WISHY AND WASHY
These are the times of extreme volatility and confusion. And thanks to Fed's wishy washy policies and unclear stance on tapering, the chaos is likely to continue. Among the many voices criticizing Fed's policies, one of the strongest comes from the legendary investor Jim Rogers. And is definitely worth listening to. Mr Rogers sees a disaster in the making as more and more money is being printed. The latter will only lead to destruction in the currency value and hence wealth.
Currently, this money is finding way in financial markets leading to asset bubbles or stock markets. No wonder, markets are getting disconnected with the underlying economic fundamentals. But sooner or later the liquidity is going to dry up just making things worse for the global economy
Currently, this money is finding way in financial markets leading to asset bubbles or stock markets. No wonder, markets are getting disconnected with the underlying economic fundamentals. But sooner or later the liquidity is going to dry up just making things worse for the global economy
Is it worth
Moneycontrol News : Fundamentals still weak, mkt not worthy of all time high
Full News: http://bit.ly/1er0acw
USD 62 WHAT NEXT
Moneycontrol News : RBI will be reluctant to allow rupee to gain: Credit Suisse Full News: http://bit.ly/1dr4y8f
who is Responsible for CAD
The following post is not supporting Modi nor a satirical mockery on government's (un) performance. If you have time please read
Well, we have been reading a lot about India's current crisis. The matter that has hogged the maximum limelight over the past few months is India's widening current account deficit (CAD). And the result is steep fall in the value of the Indian rupee against the US dollar.
What's the cause of this CAD crisis? The government and experts have largely focused on a couple of issues. One, high gold and crude oil import bills. And two, flight of capital from emerging markets owing to the US Fed's likely tapering of QE.
But one very major element of the current crisis has been largely ignored. An article in Business Line by S Gurumurthy throws light on this less-talked-about issue. As per the author, the real culprit of the CAD crisis is unprecedented imports of capital goods during the UPA regime.
Let's go back in time a bit to see how India's balances were when UPA took over office in 2004. Interestingly, India had reported a current account surplus of about US$ 22 bn in the immediately preceding three years. Mind you, that was despite the doubling of average oil prices then.
But since UPA came to power, the CAD kept on widening. Consider these statistics. During the NDA regime, average annual capital goods imports were about US$ 10 bn. But as soon as UPA came to power the imports jumped to US$ 25.5 bn in 2004 itself. And of course, capital goods imports have been burgeoning ever since. Since 2004, India's total capital goods import bill has been US$ 587 bn.
Let us now see how capital goods imports have had a greater impact on CAD than crude oil or gold. After off-setting oil imports against oil exports, the aggregate net impact on the CAD has been US$ 515 bn since 2004. In case of gold, if you adjust for exports of gems and jewellery, the impact on the CAD has been about US$ 161 bn.
One may argue that unlike gold and oil, capital goods are income generators. And hence, good for economic growth. But the economic data doesn't seem to support this argument. As per the author, India's capital goods imports increased 79% in the last five years. But the growth rate in the index of industrial production declined from 11.5% to 5% level during this period. But it's not just capital goods. India's manufactured goods imports have also shot up 20 times over the last 9 years.
What does all this do? A direct casualty of uninhibited imports has been the domestic manufacturing industry. It simply hasn't been able to hold up against the onslaught of imports.
I very much agree with the author's views. Instead of supporting the manufacturing industry, the government seems to have only sabotaged its growth prospects. And here you have an economy that's in a very weak spot.
Well, we have been reading a lot about India's current crisis. The matter that has hogged the maximum limelight over the past few months is India's widening current account deficit (CAD). And the result is steep fall in the value of the Indian rupee against the US dollar.
What's the cause of this CAD crisis? The government and experts have largely focused on a couple of issues. One, high gold and crude oil import bills. And two, flight of capital from emerging markets owing to the US Fed's likely tapering of QE.
But one very major element of the current crisis has been largely ignored. An article in Business Line by S Gurumurthy throws light on this less-talked-about issue. As per the author, the real culprit of the CAD crisis is unprecedented imports of capital goods during the UPA regime.
Let's go back in time a bit to see how India's balances were when UPA took over office in 2004. Interestingly, India had reported a current account surplus of about US$ 22 bn in the immediately preceding three years. Mind you, that was despite the doubling of average oil prices then.
But since UPA came to power, the CAD kept on widening. Consider these statistics. During the NDA regime, average annual capital goods imports were about US$ 10 bn. But as soon as UPA came to power the imports jumped to US$ 25.5 bn in 2004 itself. And of course, capital goods imports have been burgeoning ever since. Since 2004, India's total capital goods import bill has been US$ 587 bn.
Let us now see how capital goods imports have had a greater impact on CAD than crude oil or gold. After off-setting oil imports against oil exports, the aggregate net impact on the CAD has been US$ 515 bn since 2004. In case of gold, if you adjust for exports of gems and jewellery, the impact on the CAD has been about US$ 161 bn.
One may argue that unlike gold and oil, capital goods are income generators. And hence, good for economic growth. But the economic data doesn't seem to support this argument. As per the author, India's capital goods imports increased 79% in the last five years. But the growth rate in the index of industrial production declined from 11.5% to 5% level during this period. But it's not just capital goods. India's manufactured goods imports have also shot up 20 times over the last 9 years.
What does all this do? A direct casualty of uninhibited imports has been the domestic manufacturing industry. It simply hasn't been able to hold up against the onslaught of imports.
I very much agree with the author's views. Instead of supporting the manufacturing industry, the government seems to have only sabotaged its growth prospects. And here you have an economy that's in a very weak spot.
Markets
'Will it or will it not' is the question. Market sentiments world over are in anticipation of the US Fed's stance over pullback of the bond buying program. And Ben Bernanke speech today is expected to outline how much longer the Fed will keep its monetary tap open.
It has been nearly 5 years now since the US central bank brought the lending rates to near zero. This opened the floodgates of cheap money. The stimuli were supposed to help the US economy recover by creating more employment. That has hardly been the case. Drawing flak for inducing cheap money to create asset bubbles, the Fed articulated its target in December 2012. Chief Bernanke resolved to keep interest rate near zero at least until unemployment falls to 6.5%. The unemployment in the US is currently 7.3%. And consumer inflation has yet to cross the Fed's 2% target. Thus if one were to go by the statistics, the US Fed has no reason to unwind its stimuli sooner. But given the proportion of debt crisis the US itself is in, a rational approach to liquidity tightening is in order. Not to mention, the global economy is looking for cues from the US with regard to setting economic imbalances right.
For Indian markets though, there is very little good news in the offing. If the outgoing Fed chief Bernanke chooses to step on the brake before vacating his post, there could be panic in the markets. A sudden and quick pull back of the bond buying program will mean flight of dollars from the country. The rise in interest rates will entice foreign investors to chase safe haven US Treasuries as against emerging market stocks. Besides having an impact on the stock markets it will certainly impact the currency. The already pressurized rupee will come under further pressure if dollars head for the door. Not to mention, India's current account deficit, fiscal deficit, trade deficit and sovereign rating concerns will go back to square one.
Now, since it is not going to be very easy for the US to suck out all the liquidity, the possibility of pullback, if any, being very mild is high. More importantly, it could be very gradual. This too will mean that cheap and short term money will keep finding its way into India.
Thus the Fed's stance, though over hyped does nothing to aggravate or assuage the concerns of Indian investors. India's near term problems are not going away without the government's actions on reforms and policies. The selection of stocks therefore need to be on the basis of those that can tide over the worst rather than those that can benefit from short term speculations.
For Indian residents, the sharp depreciation of the Indian rupee is a big negative. It adds further inflationary pressures and eats into our savings and purchasing power. But as it goes, darkness somewhere means sunlight somewhere else. And this is the case with the rupee as well. The Non-Resident Indians (NRIs) seem to be laughing their way to the bank. For them, a depreciating rupee is a lucrative proposition.
Say an NRI sitting abroad could borrow money at cheaper rates abroad. He could then remit the money to India and thanks to the rupee depreciation he would get more rupees than earlier. In addition, he could enjoy the benefits of relatively high deposit rates in India.
And here is proof that the money is pouring into India. As you may know, Kerala receives the highest NRI remittances in the country. As per Indian Express, the state has received remittances worth Rs 750 bn in just the first five months of the current fiscal. That's a significant jump from Rs 600 bn received during the entire previous fiscal. As per Firstpost, foreign banks have identified this opportunity and are set to provide upfront financing for wealthy NRI clients to place large dollar deposits in India. Possibly, the inflow of dollars will provide temporary relief to India on the current account front. However, the flight of these dollars cannot be ruled out as soon as the exchange rates change course.
Buying interest in power, banking and FMCG heavyweights has kept the key indices in Indian equity markets above the dotted line for most of today's session. The BSE Sensex was trading higher by around 88 points at the time of writing. Key indices in Asia closed a mixed bag today while Europe has opened flat to positive.
It has been nearly 5 years now since the US central bank brought the lending rates to near zero. This opened the floodgates of cheap money. The stimuli were supposed to help the US economy recover by creating more employment. That has hardly been the case. Drawing flak for inducing cheap money to create asset bubbles, the Fed articulated its target in December 2012. Chief Bernanke resolved to keep interest rate near zero at least until unemployment falls to 6.5%. The unemployment in the US is currently 7.3%. And consumer inflation has yet to cross the Fed's 2% target. Thus if one were to go by the statistics, the US Fed has no reason to unwind its stimuli sooner. But given the proportion of debt crisis the US itself is in, a rational approach to liquidity tightening is in order. Not to mention, the global economy is looking for cues from the US with regard to setting economic imbalances right.
For Indian markets though, there is very little good news in the offing. If the outgoing Fed chief Bernanke chooses to step on the brake before vacating his post, there could be panic in the markets. A sudden and quick pull back of the bond buying program will mean flight of dollars from the country. The rise in interest rates will entice foreign investors to chase safe haven US Treasuries as against emerging market stocks. Besides having an impact on the stock markets it will certainly impact the currency. The already pressurized rupee will come under further pressure if dollars head for the door. Not to mention, India's current account deficit, fiscal deficit, trade deficit and sovereign rating concerns will go back to square one.
Now, since it is not going to be very easy for the US to suck out all the liquidity, the possibility of pullback, if any, being very mild is high. More importantly, it could be very gradual. This too will mean that cheap and short term money will keep finding its way into India.
Thus the Fed's stance, though over hyped does nothing to aggravate or assuage the concerns of Indian investors. India's near term problems are not going away without the government's actions on reforms and policies. The selection of stocks therefore need to be on the basis of those that can tide over the worst rather than those that can benefit from short term speculations.
For Indian residents, the sharp depreciation of the Indian rupee is a big negative. It adds further inflationary pressures and eats into our savings and purchasing power. But as it goes, darkness somewhere means sunlight somewhere else. And this is the case with the rupee as well. The Non-Resident Indians (NRIs) seem to be laughing their way to the bank. For them, a depreciating rupee is a lucrative proposition.
Say an NRI sitting abroad could borrow money at cheaper rates abroad. He could then remit the money to India and thanks to the rupee depreciation he would get more rupees than earlier. In addition, he could enjoy the benefits of relatively high deposit rates in India.
And here is proof that the money is pouring into India. As you may know, Kerala receives the highest NRI remittances in the country. As per Indian Express, the state has received remittances worth Rs 750 bn in just the first five months of the current fiscal. That's a significant jump from Rs 600 bn received during the entire previous fiscal. As per Firstpost, foreign banks have identified this opportunity and are set to provide upfront financing for wealthy NRI clients to place large dollar deposits in India. Possibly, the inflow of dollars will provide temporary relief to India on the current account front. However, the flight of these dollars cannot be ruled out as soon as the exchange rates change course.
Buying interest in power, banking and FMCG heavyweights has kept the key indices in Indian equity markets above the dotted line for most of today's session. The BSE Sensex was trading higher by around 88 points at the time of writing. Key indices in Asia closed a mixed bag today while Europe has opened flat to positive.
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