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.

India: 20(13) and beyond

In this blog I have made a point about what I know and understand regards the connectivity in the world of finance from global to India.

Few years back – before 2008 global financial crisis – India was a different country. Current aspects are changed for this emerging economy, known as ‘I’ in BRICs nations. Economics and financial experts from around the world including some of the major investment banks and credit rating agencies are predicting India to grow more than 6% of GDP in 2013. But whether it’s actually possible, or are they just trying to surge investors’ confidence. Even Indian government and Ministry of Finance too expecting record break growth in the near future. I would not disagree on India’s future opportunities and resources, but I certainly disagree on application and taking action plans.

Most of the people around the world believe that the year 2013 would be worse than past year(s). Re-elected the USA president, Barak Obama has a chance to put American economy back on growth, where the country is already bankrupt – the US fiscal deficit 103% of GDP. Year 2013 would decide whether Democratic Party in the US is able to raise taxes and cut expenses and helping the economy from fiscal cliff. To overcome unemployment issue America needs radical innovations, like nation introduced computers, dot com and social media. If the US will fail, the impact on India would be far beyond than 2008 global crisis.

On other end of the Atlantic Ocean recession is taking shape. European crisis lead by Greece’s sovereign debt and its consequences would trigger tsunami around the world. Last quarter the UK reported slowdown with negative sign. Germany, which is the only hope to bring out Euro from collapse, contracted in a last quarter. Currency Euro is the bond, which keeps European countries together in peace and prosperity state.  I wish this bond is unbreakable, because this planet really doesn’t want to bleed in the name of World wars in upcoming future. European Union is leader in trade with India – around 18% of trade. Euro fall would stop India’s roaring growth engines.

Not far from European land, there is crisis in Syria too, conflict between Israel and Palestine, Iran nuclear dispute. These all event has direct or indirect effect on India, in terms of import of crude oil or production of natural resources like gas and oil. If it continues, world would be impacted on supply side and commodities price hikes.

 This was the glimpse on world and its events, but how India would looks like in 20(13) and beyond?

I believe 2013 would become a game changer. I see year 2013 as one the biggest opportunity after 1991 reforms. In year 2013, most of the developed economics would contribute slow growth, but Asian countries like China and India has opportunity to attract investors from around the globe for better returns and wealth creation.

If India would lose this opportunity, Indonesia would be the new ‘I’ in BRICs nations. The reason behind I called 2013 a game changer is because; India has potential to grow beyond 6% of GDP, when most of the developed countries are struggling to come out of recession. This is the opportunity, it would not repeat in 2014, because center elections will be there, and political parties would be busy in waving their flags. And after that 2015-16, may be the developed countries would be back again on growth tracks after long years of slow down. There would be the opportunity for India, but it would be divided with others.

But year 2013 would not foster India easily, where in past, parliament was adjoined for days – winter sessions lost more than 120 hours, voting session on Foreign Direct investment (FDI) in retail by oppositions, disagreement on mix policies – where Reserve Bank of India is not ready to cut down interest rates because inflation is beyond comfort level.

Renowned global consultancies like McKinsey and Boston Consultancy Group came up with research papers like The Bird of Gold: The Rise of India’s Consumer Market and Paisa Vasool: The $10 Trillion Prize, and predicted India’s future growth and emerging opportunities. This all mix ideas says that probably India’s economy size would be double than current in next coming decade. This is true, because in past few years we have seen India putting its mark on world map.

My doubts would be clear when government will come up with reforms and new spirit of transparency, reforms like, land and labor reforms, Direct Taxation Code (DTC) and Goods and Service Tax (GST), General Anti Avoidance Rules (GAAR), mutual fund reforms, financial sector reforms to make them more transparent and resilient – Basel 3 etc. Including these reforms, government need to stretch its comfort levels and should look towards; inclusive growth and its implementation, human development, education system, supply side bottlenecks, infrastructure and transportation sectors etc.  These are the core areas which would take India forefront, and if government fails to implement these, India will definitely lose its shine.

And crisis storm is taking shape; no country can afford to ignore it, in terms of sovereign debt, Middle East disputes or Fed’s Quantity Easing (QE) practices. If not in near future than in longer term. The economy cannot go forever the way it is, because in economy people are involved it’s not only capitalism. But India has opportunity right now to put itself into safe haven, before global tsunami comes.

I really want you to be little personal here, it’s equally important that you – individual investor or a corporation – must hedge yourself, because if the country is in trouble government would save it with taxpayers money. So, at the end we are on the hook. And inflation is monster, and it would become much bigger than it is today. Maybe we cannot realize it today, but tomorrow we will surly going to pay the price. My view to escape from this is, to be less dependent on credit and do not follow herd while investing. Invest based on your understanding not only based on your knowledge.

“A penny saved is a penny earned.” _ Benjamin Franklin 

Indian rupee falling to Rs. 57 per USD and rising above Rs. 48 per USD

Currency fluctuation on international exchanges around the world can bring sleepless nights to any investor. Domestic currency volatility is a very fragile thing, and has impact on investors’ sentiments.

The USA dollar simply known as USD is the highest traded currency in the world. Euro takes second place in currency trading. In current weak global scenario, Indian Rupee known as INR, has depreciated more than 25% in a year, and has created deep impact on domestic and international investors’ sentiments.

Depreciation of INR against USD can invite mighty storm in Indian financial markets. The main reasons behind its depreciation are USD in demand, as investors thinking that it is a safe haven to park funds. Second reason is collapse of International trade; India’s current trade deficit is $ 13486 million, 4.3% of Indian GDP. Third is capital flows, Indian notices more capital outflows than inflows of foreign currency.

The major impact of INR appreciation or depreciation would be seen in Import – Export industry, corporate and organizations having large borrowing of foreign loans, students going abroad for study and travelers coming India for visit.

How INR depreciation against USD impact corporate?

When INR was at level 45 – 50 against USD, corporate have borrowed money from overseas, and in current situation where INR is at 56 per USD, cost of repayment of foreign loans and bonds are costly. Crisil Ltd. study shows that Indian firms are defaulting on loans as cost of repayment goes up. In meantime cost of borrowing too increased by 10%. In this scenario companies are losing cost advantage from ECB and Federal Reserve Bank, because their rates are at a record low than Reserve Bank of India’s benchmark rate. These events have direct impact on corporate net profits, and can lead in low dividend payments.

Companies such as Bharat Forge, Rural Electrification Corporation, Bharti Airtel and Adani Power are heavily depending on overseas borrowing for expansions. Sterling Biotech failed to pay $ 184 million of convertible bonds that matured on date. It shows that corporate interest coverage ratio is falling and interest payments are rising.

INR depreciation has also created doubt in foreign investors and FIIs. Fall in Indian Rupee would not give foreign investors expected returns, and they would start pulling their investments from Indian financial 

markets. By this INR would depreciate further because it would create lack in foreign currency reserves.

Research done by economist concluded that there is no direct relation between Indian stock markets and exchange rate, foreign exchange reserve, value of trade balance. But event would affect firms’ overall profits and this could lead towards stock prices fluctuation.

One of the major impacts of INR volatility is on Import and Export businesses.

Major Export items in India: Live animals, milk products, wheat, rice, coffee, tea, spices, cumin seed, tamarind powder, sesame seed, sugar, henna, herbal extract, medicines, fertilizers, chemicals, salt, iron ores, minerals, books, leather products, textile, dyes and pigments, home furnishing, footwear, brass items, Aluminum items, sanitary wear, ceramic, glassware, flanges, fittings, embroidered and Zari items, pipe and pipe fittings, handicraft, cables, medical disposables, laboratory equipments, surgical equipments, sports goods, wooden furniture and various other engineering and electrical products.

Major Import items in India: Cereals and preparations, Fertilizers, Edible Oil, Sugar, Pulp and waste paper, Paper, Newsprint, Crude rubber, Non-ferrous Metals, Metalliferrous ores and metal scrap, Iron and Steel, Crude Petroleum and petroleum products, Pearls, Precious and Semi-Precious stones, Machinery, Project Goods, Pulses, Coal and its derivatives, Non-metallic, Organic & Inorganic chemicals, Dyeing, tanning material, Medicinal products and Pharma products, Artificial resins, yarn & fabrics including silk, wool and cotton, electronic goods, wood and wood products, gold and silver, essential oils, computer software, etc.

In this Crude Petroleum and related products are imported around, $ 73.7 billion or 32% of the total imports. Hence, depreciation in rupee will increase import payment bills.

What steps Reserve Bank of India can take to stop Indian Rupee depreciation?

• Reduce trading limits for banks in foreign currency.
• Increase in interest rate for NRI and NRE bank accounts. 
• Open window for Oil import companies to do direct payments in USD.
• Issue special type bonds targeted to Indians who live in foreign, this will boost foreign currency reserve.

In INR depreciation or USD appreciation exports gets advantage, but in this scenario, international commodity prices would fall and exporters could not get advantage.

What if INR touch 48 per USD?

India would become cheap destination for foreigners and Indian tourism sector gets boost. It works inversely, as simple as, it gives advantage for importers. This event could take place if Government policies make India lucrative in investment and results in capital inflow.

But it has negative impact on Indian economy. Indian government and Reserve Bank of India maintain rupee value against basket of currencies, maintains level is around 50 per USD. In 2007-08, rupee appreciated by 13% over USD. Appreciation in INR has negative impact on exports and its industry margins. This has a little role to play in trade deficit, because India’s less export business will directly impact on trade. When INR appreciated in 2007-08, India’s FY 08 Q1 trade deficit was around $ 16,000 million. (In trade deficit case major role is played by import payments bills.)

Note: Study was done in July, 2012

How can the company leverage social media - Twitter - to grow its business?

Twitter is well-known micro blogging social media platform, where users can share, interact and build a network using 140 characters or less. Leading businesses and organizations use this social media platform to share news, latest events or product launches to their followers or customers. Companies like, Dell, HP, Microsoft, IBM, Starbucks etc are leader in it. Twitter currently has more than 140 million active users, generating more than 340 millions tweets per day on website.

Reasons, why companies should rely on Twitter to foster its business?

·       Connecting with customers and employees, by this company spread update on current or future activities.

·       Branding, on twitter company can promote brand image of its company through personal account or company logos etc., even organizations can set profile background according to companies brand and industry.

·       Marketing, companies use Twitter platform to market itself by tweets update, latest news about companies, online services to their customers etc.

·       Spy on competition, you can follow your competitor too. And on their tweet updates you can make strategies, or you can check how your competitor is serving their customers.

·       To grow upward in sales and profits, Dell is the company which reported $6.1 million sales through Twitter.

·       Brand loyalty, by regular valuable tweets organizations can increase its brand without any cost on social media platform.  

Effective and progressive methods, tools and applications to grow business on Twitter,

·       Promote your employees and their work story, by this employees feel proud about their company and followers get good impression towards company.

·       Promote company’s blogs or articles, and ask a question or explain what’s next? To keep interest level high.

·       Follow interesting people, if you find someone who tweets interesting, check out who he/she follows.

·       Use direct messaging for one to one conversation, and utilize short URL option to make URL tiny.

·       Communicate to others tweets by reply, and retweeting on others posts. It is a best way to grow community.

·       Use hash tag or #tag, added to your tweet acts as a way to create categories, groups or topics for tweets that can others read as well. This can be use as promoting events or product launches etc.

·       Twellow, twitter phone directory that short people by industry and makes it simple category format. This can be a great way to find people in your industry or company domain.

·       Tweet Facebook application, your tweet will be automatic shown if you change your Facebook status.

·       Use twitter filter to survive from overloaded tweets, this tool automatically filters devalued tweets.

·       Advance search, by this you can find old tweets based on words or phrases or by any hash tags.

·       LinkedIn users can automatically update their tweet status by their LinkedIn status updates.

·       Manage your tweet activities by software called TweetDesk; this can keep an eye on each tweet activities.

 All features and techniques mentions in this research from twitter are free of cost. For this all you need is a professional profile and to maintain professional status on all these social media websites. Cost for particular activities are not too high, you just need a person who is sound enough in finance knowledge and interest in social media activities. Other alternative is to give access of these social media platforms to selected person in a company or a department, like, Heads of Department, senior analysts, equity researchers etc. In this I would prefer not to give access to under matured person or newly hired employee in a company. 

@rutvij_bhutaiya (Twitter)