India needs second wind phenomena

Last month I resigned from my job. I put resignation 2 months before I shift to Gujarat. In the meantime, I tried to search myself and life beyond numbers.

Since beginning of my PGP course I am passionate about going beyond numbers in finance for better human to human understanding. 

I don’t have big data and complex statistical tools for research, so I decided to do it in my own way.

Every time I visited Select city mall in Saket, New Delhi or Ambiance Mall in Gurgaon I feel my understanding about money is imbalanced. So, to balance this understanding I visited streets of Chandni chowlk and Sarojini Nagar market. And I found my answer. I get this answer from stores like Zara to Shopper Stop, Blue-O to BMW showroom. From a chai wala in Palika Bazaar to Electronic shops in Nehru place. From a fruit shop in Sadar Bazaar to Ansal plaza at Palam Vihar, and many more..

And I came to a conclusion that, India is trapper by Inequality. And I believe that if policy makers will not act in a right direction this gap of inequality will widen.

Currently I am living in Sec-40 in Gurgaon, where I have seen most of the people are living on rent. Areas around Cyber Park and Phase-2 most of the working individuals or families are living on rented apartments.  I discovered very unusual things [due respect to individuals interest - views are personal], where people having sedan car not only one but two cars, without a place to park.  Some of them are having a big car than their home. They have money to pay car loan EMI but do not have money to start a SIP (Systematic Investment Plans) for retirement years. 

I might be wrong in my research, but yes, this is truly inequality, where a person chasing luxury assets at cost of basic necessity. The reasons they are unconsciously driven are, first, high expectations from future value of money. Second, illiteracy in money management, third, herd behavior [my neighbor is risk taker and she is investing in real estate, even I also do better in real estate].  Individual should take risk according to their own risk taking ability.

In the end, to narrow down this inequality gap, India needs second wind phenomena. If India fails to generate second wind  it will further drag down in inequality and an individual will suffer middle income trap. 

I am ready to bet on RaghuRam Rajan’s strategic policies and leaders like Narendra Modi, who has capabilities to create second wind phenomena. When next time game changes and ball falls in your court, take advantage of it. If we'll fail to act in our money management The next crisis will expanse our defaults. 

Next money fiasco! - Time is on our side.

Few days back I was wondering, who are the ultimate victims in this bloody bath game?  A conclusion is, we as a common people, especially at the bottom and mid-level income people.

In few of my previous posts I tried to explain that the world is so much deeply inter-connected that at the certain times it is impossible to channelize domino effect. When one country or an economy or a bank goes down it do impact the entire world economy.

In 2008 we experienced that one Wall Street bank went down and Indian markets crashed. Not only India, but the global financial system was frozen. The US government took over AIG in $ 85 billion bailout package. This $ 85 billion was indirectly tax payers’ money.

In future if there would be ever need of financial bailouts countries and governments are going to do it at any cost. And victims will be bottom and mid-level income families.  They would face problems in terms of unemployment, high costs [inflation], stagnant growth in salary income, individual high debt etc.

There are semi-strong signs that the financial tsunami could rise again in near future, thanks to free flow of cheap money [QE program].

Then what’s the solution?

According to RBI governor’s confidence and tactic approaches India has potential to stand back again. But, I do a favor to individuals that, we have time to hedge our savings and investment goals before any fiasco takes place.

I urge investors to take advice from professional investment advisors. According SEBI (Investment Advisors) Regulations, 2013, investment services are going to strengthen in dynamic ways for investors and financial industry.

I do understand that India faces problems in terms of corruption etc. but financial regulators like Reserve Bank of India [RBI] and Securities and Exchange Board of India [SEBI] are working to enhance better financial system.

If we will not act on our individual financial planning right now, time would not be on our side next time. 

Cyber world and Human world

Few days back friend of mine asked me a question. What if I get all the investment and financial advisory by just few clicks on internet? In coming few years why would people come to you for financial planning or investment advisory?

At some extend she is correct. All the information is available on internet. Software and websites has been built, which can create your financial plan based on manual inputs and goals.

I appreciate her views and upgrading trends in financial algorithms & technology. But ask yourself, would you really put your future dreams or goals or savings and trusting cyber world 100%?

In upcoming few years you will have all the information available on internet, but how will you differentiate those information – related to financial planning or investments – according to your unique goals and risk taking ability. Out of n information, how will you know which is right for you? For this, believe me you will need a human touch.

We all thrive to grow faster than time, riding on fast paced improving technologies. But at the end we all are mankind; we can feel the present moment and take bold decisions based on situations.

However, I am taking ‘advantage’ of latest technologies and internet information and financial trends to improve my clients service better and better with smile.

What are your views about connections between cyber world and human world?

How an individual Indian can avoid India’s middle income trap?

How an individual can avoid India’s middle income trap? And why it is so important priority to act now?

In this blog, I have given a glimpse of macro-economic connections with India followed by how an individual can avoid middle income trap.

In last couple of decades, more than two time world economy fall through gaps VERY BADLY. Some can argue upon Asian Crisis end of 1990s than Dotcom bubble, 2008 Lehman Bankruptcy etc. 

Did India learnt anything from it? Did India took any radical path to hedge itself, according to its own demographic traditions, culture or people’s attitude and mindsets? 

Dr. Ruchir Sharma tells in his book, ‘Breakout Nations – In Search of the Next Economic Miracles’, India will be able to put all young people to work because of education system, entrepreneurial zeal, and strong links to the global economy. But India is already showing some of the warning signs of failed stories, including early-onset overconfidence. 

According to a research paper, ‘What Caused the Asian Currency and Financial Crisis?’, current account deficit and foreign indebtedness, growth and inflation rates, savings and investment ratios, real exchange rates, etc..

Many of these factors exists in Indian system, and some had been taken care by Reserve Bank of India.  

According to my view, this current period could be far worse than post-Lehman crisis. In my blog, ‘Past 2 years <- ‘?’ -> Next 2 years’, in third ‘?’ I have shared views. In these times people are addicted to spending, thanks to growing income levels – both in private and public sectors – and consumers’ confidence, see chart 1 – GDP per capita growth y-o-y. 

Source: Trading Economics

But it also supported double digit inflation. And Reserve Bank of India is taking crucial steps to curb inflation at cost of growth. In near future if Fed Chairman Mr. Bernanke stick to his words – taping QE 3 – then scenario would be worse for India. And it is more likely to happen. 

Now, what can an individual do to in such situations, where the pay hike in the next future would be probably low?

My views are,

Step 1: List down your long term (3 to 5 years) future needs and goals. Like buying a house, child’s education, set aside emergency funds, building corpus for particular needs etc.

Step 2: Try to avoid taking pure liabilities by mortgaging valuable assets. Like Loans, other mortgage liability etc. 

Step 3: If possible try to get rid out from luxury, by controlling current life style by some percentage. Income inflows does not matter, where you divert it makes difference. 

Step 4: Stop fooling yourself – I am strong; my inflows are strong; I’ll overcome the tide by myself. Sorry to say but you have neither strong exposure nor time to track your financials. One of my famous saying is, ‘When it comes about money you have a choice to avoid risk, by just paying little premium – in terms of insurance or financial planner.’ 

Step 5: Get in touch with financial advisor or planner, who can help you to build strong corpus and portfolio according to your risk assessment. 

Think on it! Share your views and comments.

Why my batchmate should 'know' this money management secret?

Few days back, I was analyzing Ameriprise India’s second edition report - Trends and insights into the financial goals of Indian consumers. ‘140 per cent increase in respondents rating retirement as a key goal’, key change reported in the report.

In this blog, I have explained the importance of early savings and investment with a simple story. Why savvy financial planning at early stage? Just! Because of the eight’s wonder ‘compound interest ’.

Sincere money allocation with regular investment has an ability to lift your boats without tide. Before making such decisions always take help from financial planner and adviser.

Recently, my friend Aamer celebrated his first job party at Pizza Hut. Decent salary! Decent company. Thanks! Aamer for the Pizza party.

Before we start our main course plz have a pen and paper ready, so that you can note down few numbers, might you feel little difficulty in number crunching. In this research all calculations are actual.

Aamer’s salary is 25000/- per month. And his current monthly expenditure is 15000/-. Let’s assume that he decides to retire at the age 60 (Aamer’s current age 25). 

Everyone knows that prices are sky rocketing. At the age of 60 Aamer’s monthly expense would be 1.6 Lakh, if we assume inflation to be at 7% (we usually put it little high for safety in case it goes to much high).

If let’s say his survival age is 80. He must have corpus of 3.24 crore at the age of 60 for his golden retirement period (If we take inflation adjust return 1.86 %).

Real story starts now.

Case 1: At the age of 25, he starts savings of 2500/- only per month. At the age of 60, his total corpus would be A1, A2 and A3 (See table 1) if he invests at 8%, 10% and 14% rate of return respectively.

Case 2: If he doesn’t bother about his savings at early age, and starts savings at the age of 35 with 5% of increment in savings compared with age of 25, with 4073/- every month (Because his salary has been increased and he is able to save more at the age of 35 than 25). His corpus at the age of 60 would be B1, B2 and B3 (See table 1) if he invests at 8%, 10% and 14% rate of return respectively.

Case 3: At the age of 45 he thinks, it’s quite late to savings for retirement period. He starts investing 10565/- per month (increase of 10% from savings of age 35). His corpus at the age of 60 would be C1 and C2 (See table 1), if he invests at 8% and 10% rate of return. Here we eliminate 14% rate of return because, at this stage it’s not appropriate to chase high return with high risk.

Case 4: At the age of 55, Ahh! I need to save for my retirement to have same lifestyle. He saves 65415/- per month (increase of 20% from savings of age 45). His corpus at the age of 60 would be D1 and D2 (See table 1), if he invests at 8% and 10% rate of return.

Initially we have calculated, required corpus of 3.24 crore at the age of 60 to fund his retirement lifestyle. None of the figure from the table 1 came near to 3.24 crore. 

How would he survive his retirement? It’s actually simple, just by increase of 1125/- per month. If at the age of 25 he starts saving 3625/- (2500 + 1125) per month and if he chooses to invest at 14% rate of return. 

These figures might confuse you a little, but there is nothing written in air. All figures are actual, and calculated by financial calculator. Most of us think, we have decent salary and having an international bank account. Savings bank accounts are not sufficient at all. I bet that. I haven’t shown comparisons with banks interest rates, otherwise shock could be a very very high to my friend. 

Moral of the story is, when it comes about money, you have a choice to avoid risk, by just paying little premium - in term of insurance or to Financial planner. There are enough options available in India to avoid personal financial crunch. You just need is to bet on time. 

					in Lakh
		A	B	C	D
8%	1	53.9	37.2	35.8	48.2
10%	2	85.6	50.6	42.4	50.4
14%	3	223.5	95.4	-	-

Table 1

Past 2 years <- ‘?’ -> Next 2 years

2 years ago, I stepped into an uncharted path. My eyes were wet and heart was rich with hope.  Occasionally I think these 2 years were like endless time, but it was just a blink of eyes. This story is about that time – blink of eyes­ – and endless memories which I earned in Gurgaon.

Few years ago, when I came to this place, I had no idea about what’s going to come next.  I started my journey with ‘empty boat’ – no big plans. Initially my aim was to fail as much as possible and learn ‘at the moment’ from that failure. I also followed one advice, ‘keep your mouth shut and ears open.’ One day, I was chosen to give introduction on Microsoft’s case study – in one of the marketing lecture. I failed so badly because of my poor communication skills, my confidence was broken. But step by step I kept learning. And I am still making mistakes but also learning from the same mistakes.

My friend Aamer usually says, ‘To become successful you need to work only on 2C formula – communication and confidence.’ Rest of all techniques is secondary.

What I learn in these 2 years and what my understanding tells. Still I am not a professional, so it may not be certainly correct but yes at some extend it is certainly correct, followed by question marks. I am sharing few of these ‘?’ in this blog.

1)    Wealth of a country is measured on certain parameters. One of the parameter is economy’s GDP. Many economist and financial experts do predictions on growth – based on GDP ­– and they compare it with other countries. ‘I’, taken from BRIC nations is also a part of those comparisons. I believe that India should not be in comparisons with other developing or developed nations. The reason is 1.2 billion people and this number is increasing day by day. India has large pool of middle class people, do central bank’s monetary policies and government’s fiscal policies are efficient to satisfy those people? The Fed government is doing QE (Quantitative Easing) to strengthen US economy after 2007, Lehman crash. Japan has recently adopted same strategy to pull out its economy from decade long depression. If India faces any crisis in future, would same strategies help?

2)    Inflation is a monster. Biggest worry for any emerging economy is how to control inflation. India is not alone in the race of emerging economies, China, Brazil and Indonesia too dominating their positions in this endless race. Their inflation signals are not popping in RED! Indian central bank’s top priority is to control inflation. I would not totally agree, but somewhat RBI (Reserve Bank of India) got success. In future inflation would definitely rise up to uncomfortable levels and the only reason would be billions of people. India should not adopt other countries strategies, because this country has its own structural problems and it’s not easy to manage billions of heads under one roof, where in 2010 India’s GDP growth was decent but its HDI (Human Development Index) rank was far behind, 134. This is not an ‘inclusive growth’. No doubt India would prosper with economy growth, but is it in advanced state of decay?

3)    Fortunately India survived 2007 sub-prime crisis started with Lehman’s bankruptcy. But now the situation is different, India is now deeply connected with global economies. In last few years India has minimized trade barriers to boost economy health. Some companies are experiencing and struggling to keep sustainable growth levels, impact of Euro crisis. What if, in future again global tsunami hit our shores, would India be auspicious? How deep impacts would be?

People saying that, world leaders would break global tsunami and we have learned and adopted lessons from past crisis. People use to say same things in Great Depression and Asian crisis and here we are again, met crisis. This is a vicious circle, it will come again, but the point is do we have any option to create safe havens and if yes, are we working towards it? Or India is only interested in chasing double digit GDP figures?

I would be happy if anyone of you revert me on these question marks. Kindly correct me if I am wrong, it would help me.

You can also send me mail to reply these questions rutvij.bhutaiya@gmail.com.