BRICS Nations

What do you mean by BRICS nations?

BRICS i.e. Brazil, Russia, India, China and South Africa; are the emerging nations .These economies are developing very aggressively to become the developed economy.
Emerging nations are those developing nations which are going to become the new destination of the business houses and emerged as the industrial nations.

As in the emerging market; local governments provide a lot of facilities easily to the new companies. These emerging markets make their policies to attract more and more foreign investment.

Benefits to the company from the investment in emerging markets

·         Land is easily available at appropriate place and price.

·         Labor cost of these countries is also very low.

·         Tax rate is low for the investment in industrial areas.

·         As the growth rate of these countries are higher, so purchasing power of the population is increasing day by day.

Benefits to the nation from the foreign investment

·         Development of Infrastructure

·         Transfer of technology

·         Employment generation

·         Increase in the stock of foreign currency

·         Living standard of the population is improved

If we want talk about the GDP growth then, it is found that growth of these emerging nations is better than the GDP growth of the developed one. As the growth of these emerging countries is also affected by the euro zone crisis but effect is less in comparison to developed countries.

These emerging markets are also ready to give better return to their stock and bond investors.

We can take the example of India: Good ‘A’ Grade corporate bond in India is ready to give 9% yield, which is much better than the yields on the bonds which are issued by the developed countries.

So, BRICS nations are advisable for the investment purpose.

Life Insurance

From a legal angle insurance is a contract. The contract is between insurance company and the person getting insurance cover, beneficiaries of insurance would include

• The policyholder
• The insured person
• Dependent of the insured person

Life insurance is usually taken by the earning member(s) of the family to ensure that in case of their death, and hence their source of income ceasing to exist, the dependent family members would have a lump-sum amount to fall back on. So by paying a small amount every year the earning member of the family can ensure that the future of their loved ones is absolutely secure from a financial point of view. So in the event of death of an insured person, the nominee of the policy would receive an amount called the sum assured which can then be used effectively to plan for their future.
Benefits of taking a Life Insurance Plan

•   Provides for Loss of Income
•   Protects your Asset
•   Financial Planning
• Tax Savings

As we know that our life is full of risk and anything can happen at any time. So, we must have to take life insurance cover at the right time. It gives the real protection to family member in the event of the death of the earning person of the family.

Regulatory authorities of insurance sector in different countries are:

• The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.
• Insurance regulatory authority in India is IRDA
• Regulatory authority of Insurance in Russia is Central Bank of Russian Federation

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Globalization

After the globalization, the whole world has become a small village and the economic growth and slow down of one country affects all over the world. A decision taken by the government of one nation affects the business of all over the world.

According to the data, IMF shaved its 2013 forecast for global economic growth to 3.9% from 4.1% it projected in April. As euro zone crisis affected the whole world’s manufacturing and service sector growth.

Now, euro zone nations are trying to come out from this debt crisis and they are also busy in making the reform policy for their country. So that, they would become able to reduce their debt burden and increase the growth of their country. We can take the example of Spain where government is planning to raise 56.4 b Euro from deducing the spending, increase in the tax rate and adding new power and environment tax. As these steps are very much required for the country to take out itself from the burden of debt. But, when the tax rate will be increased and the government will cut the job then the demand for good and services will be reduced by the people and it will affect the whole world. Such as if the US has export goods and services to Spain then the demand of US goods and services will be automatically decreased.

We can take another example i.e. related to India.

As India has allowed 100% FDI investment in single brand retail but it has put a lot of restriction such as the company which will entered into the market has to mandatory sourcing minimum 30% of their goods from local small and medium sized enterprise. Now many companies want to enter into the Indian retail market but they require some liberalization on this law.

This type of decision affects the growth of both countries, firstly from where the FDI is coming and secondly where these investors want to invest. As every FDI investment increase the employment in both foreign and Home country.

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FDI in single brand retail

India is one of the emerging nations of the world. It is the part of the BRICS and without it, this word has no meaning.

It attracts a lot of investors around the world. As the labor cost of India is very low, many companies have already made it the export hub and others are also planning to invest in this country.

A few years ago India was known for the Agriculture and nearly 80% of its population was depending on it. But now this percentage is decreased and this country is known for the software development, innovations and export hub of different motor car companies.

According to population, India is the second largest country of this world after China. So, It becomes a very attractive market for the retail investors around the world.

India has allowed 100% FDI in the retail but they had applied a lot of conditions on it. These conditions put a lot of hindrance in front of the companies which want to enter into this market. It proves as weakness for the retail sector in India. If the full fledged environment will not be provided to the retail Investors then we can say that we put up hurdles in the development of our own countries.

When we take the example of China where shops are also exist with the big retail outlets.

FDI provides a lot of advantage to the country such as it gives employment, development of infrastructure, knowledge transfer etc.

So, Government should clarify the rules & regulations. It should be easy to get more foreign investment in the economy so that it will help in the development of our country.

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Decrease in the trade deficit in the month of June

The outlook for the global demand for the goods and services are continually decreasing as the major markets such as Europe, the US, China, and Japan are in the grip of uncertainty.

As I discussed in my previous blog that the trade deficit of India was 4.2 % in the fiscal year 2011-12 and Indian government & Reserve bank of India are continually trying to control the trade deficit in the fiscal year 2012-13 means they want to increase the export and decrease the export of the country.

Now the new data of the government shows that India’s export dropped down but the decline in import was even sharper. Which is good news for the economy as the Indian rupee is depreciate nearly 20% in the past one year due to the increased trade deficit and imports.

This depreciation in the value of the rupee harms a lot to the economy. We can understand this from the following example:-

The price of crude oil is decreased at its lowest but Indian did not able to take its advantage.

So, A wider trade deficit is never proven good for any economy.

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Trade deficit, its effects and solution

Government and Reserve bank of India are trying to control the trade deficit as it was 4.2% of the GDP in 2011-12 .And because of the wider deficit; Indian currency has regularly fallen down. Main reason behind the broader trade deficit of the country is the higher import of gold and crude oil.

Demand of Gold is very high in this country because of these two reasons.

1.       Indian loves a lot to this precious Yellow metal and likes to wear its ornaments. They also give a lot of gold ornament to their child during their marriage and also gift it to their relatives.

2.       Gold gives highest return to its investors.

The consumption of crude oil is also higher as government provides a huge subsidy on diesel and LPG which is also used by the industrial houses.
Now, Reserve bank of India is considering the financial products which can mimic the returns on Gold. Government had already increased the tax on the import of Gold to control the fall in rupee. Main reason behind this fall is the increased demand of dollar by the importers.

It is also expected that the price of diesel and LPG will be increased after the presidential election to control the trade deficit and the fall in rupee.

Economy has expected a reform from the governments side because it may happens that Reserve Bank of India will not decrease the key rates as the inflation of country is higher than its growth.

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Banks raises $10 through NRE deposits

Since August 2011 the Rupee has regularly fallen because of the wider trade deficit. This trade deficit is regularly increases due to the high import of crude oil , Gold and other products  and lower exports of the Indian products. For controlling the import of Gold, Government has increased the tax on it but there is no strong policy is made to decrease the consumption of crude oil.
As the demand of dollar is regularly increasing because of higher imports, it started to depreciate the value of rupee. To tackle this problem Reserve Bank of India liberalized the interest rate on NRE deposits. Now, banks are offering 9% or more for one year deposit on NRE or non resident rupee deposit. As the result of this, Banks raises $10b through NRE deposits.

This time whole world is facing the economic uncertainty and so, the local market such as USA and Europe offer negligible returns for NRIs.

AS the value of rupee is regularly falling from 1 Year and The government is thinking about various economic reform policies to improve the status of its currency. Some of the steps are already taken by the government such as the increase in the investment limit in the Government and infrastructure bonds and decrease in the lock in period for it.

So, It is expected that value of rupee will appreciate in near future and it will give a good benefit to the NRE deposit holders.

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Expectations of economic reform

When the Indian Prime Minister Manmohan Singh had taken the additional charge of finance ministry, Indian economy had expected a lot from him. He is a financial reformist for India as He had done the economic reform in 1991 when he was the Finance Minister of India. But now as all the politicians are busy in presidential election so, the reform is expected after this election.

At this time whole world wants to come out with the effects of euro zone crisis. As central bank of china had cut the key rates so that more customers will become able to take loan from the banks. Inflation rate of China is also goes down which will help the government to give the stimulus package to increase the consumption.

But, for the Indian central Bank it is not an easy task to decrease the key rates because the growth for the March quarter is 5.3% where as the inflation rate of the of the country is 7.6%.For controlling the inflation some of the important steps must be taken by the  central  government . These steps may be to reduce the subsidy on diesel, make policy to increase the investment in FDI, control the fall of rupee etc. 

On other hand euro zone is also trying flesh out plans to reinforce the single currency i.e. euro. Central to euro zone leaders’ plan is to give European Central Bank a central role in supervising banks’ which would then allow the permanent rescue fund.

So,A positive ray is seen ,When the whole world is trying to come out from the economic crisis and  they are also busy to take steps to recover from this crisis according to economic condition of their countries.

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FDI Vs FIIs

Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. The parent enterprise through its foreign direct investment effort seeks to exercise substantial  control over the foreign affiliate company. Example - An American company taking a majority stake in a company in India.

Factors affecting the FDI

·         Financial incentives (Funds from local Government)

·         Fiscal  Policy / Tax incentives (Exemption from import duties)

·         Indirect incentives (Provides land and other resources)

·         Political stability

·         Market potential & accessibility

·         Large economy

·         Market size

Advantage of FDI

·         Economic growth

·         Trade

·         Employment and skill levels

·         Technology diffusion and knowledge transfer

·         Linkages and spillover to domestic firms

·         Improved technology.

·         Management expertise.

·         Access to international markets

Foreign Institutional Investors

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing with a sole motto of investment and repatriation after the specified period. Institutional investors include

·         hedge funds,

·         insurance companies,

·         pension funds and mutual funds

·         Any other category specified by regulatory authority

Advantage of FIIs

·         Unavailability of Corporate Debt

·         Increase Forex Reserve

·         Increase Domestic Savings and Investments

·         Large Availability of Capital

Disadvantage of FIIs

·         Problem of inflation

·         Reduces flexibility of Policy makers

·         False representation of Economy

·         Can’t be used for long term

·         Problems for small investors 

FDI is better than FIIs if, we want the long term development of country because by foreign direct investment Infrastructure, employment, living standard of the people becomes better and it helps the developing economy to become developed.

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GDP Measurement and its weakness

Gross domestic product measures the aggregate production of final goods and services taking place within the domestic economy during a year. GDP is the measure of the growth of any economy.We treats higher level of GDP of a country as an index of greater well-being of the people of that country.

But there are some of the weaknesses present in the GDP measurement.

• GDP measures the growth of the economy not the growth in the income of the individuals. As when the increase in the production of the industries, increased the GDP but it may happen that, for the rest population income will be same or fallen.

• As GDP measures the monetary exchange. When any exchange taken place in non monetary term then it is not calculated in the GDP. These types of non monetary exchange are taken place in the developing countries.

• Externalities: - Externalities refers to the benefits (or harm) a firm or an individual cause to another for which they are not paid (or penalized).When a factory is set up then the value added of that factory is counted as part of the GDP but when Carbon Dioxide is emitted in the environment by this factory which harms the surrounding environment such as it harms the production of the plant but the factory owner do not paid any cost to the plant owner, it is called externalities.

So, according to me there is some improvement is required in the way by which GDP is calculated because it gives all results in an average.

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Inflation and its effect on economic growth

When the price of goods is increased and the value of money is decreased then it is said to be inflation. A moderate inflation is good for the economy but due to high inflation, purchasing power of the people decreased. It also decreases the demand for the goods. As the demand decreased, corporate housed stars to decrease their production. At that time Labour union demands the increase in the wages due to increase in the price of goods where as company wants to decrease the labour force due to decrease in the demand of  their goods.

The group which is most affected by inflation is the farmers and the poor population of the country because Government & Private sector companies increases the salary of their employees in the proportion to the increase in inflation but income of the above mentioned population is not increases in the same ratio.

Any Government and central bank do not want higher inflation for their country. Central Banks increase the key interest rates to control the inflation. Due to this, Commercial Banks increase the different types of loan rates for their customers. So, the supply of money is decreased in the market.

As we know that when supply of money is more in the country then it increases the competitiveness in the market and also increases the inflation. We  can take the example of Indian Central Bank ,Reserve Bank of India had continually hiked the key interest rates 13 times i.e. from March 2010 to October 2011 to control the inflation.

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Tips for Intraday Trading

Trading in which traders want to take the advantage of intraday ups and downs of the stock price is called intraday trading. Intraday trading is not easy because as it gives a good return but the risk is also very high and it may also give a big loss.

There are some very interesting facts available in the market; if you will take care of the following facts then you can take a good return from intraday trading.

•   Some of the stocks take positive response from the market, means when the market goes up then price of these stocks also increases and when market goes flat then share price also declines. On other hand some shares take a negative response from the market, it means that  when the market goes up then share price decreases and when market goes down then price of these stocks goes up.
•  According to my point of view the stocks take a hike of 3% or more become good for intraday trading. As I saw that the stocks which take such a hike, grows continually up to 4.5% to 6%.

•  If the price of stock is increasing continually for 3 to 4 days, then its price can take a decline after these 3 to 4 days and at that day it will become harmful for intraday trader. To escape from this trap  you must have to see the historical data of the stocks which is available on the websites of different Stock Exchanges.

So, I think that if you want to do intraday trading then you must have to take care of the above things.

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Problems of MFs and its solution by Indian Government

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase security. Company hired fund managers to choose the right portfolio of securities, so that the risk factor should be decreased and return should be increased in the future. Mutual fund companies feel restricted because of the strict policies of the government .As government also want more transparency for the investors.

Now Indian Mutual Fund companies demands some most required things from the government to make their products more lucrative.

These demands are as follows :-

• 25bps increase in total expenses.
• Greater flexibility in the use of expenses levied on schemes.
• Shift the incidence of service tax on to the investors.
• Permission to MFs to launch pension plans
• Extension of Rajiv Gandhi equity saving
• Distributers want entry load to be brought back.

Government may soon take the first second and third steps.These steps are taken to strengthen the distribution network and to give flexibility to the Mutual Fund companies to manage the total expense.Expense ratio is the fee charged by a fund house to manage and operate the fund.The charges includes, management fees , administration fees and other operating costs.

As at present , MFs  are allowed to charge up to 2.25% as expense ratio and in which fund houses are allowed to take only 1% as asset management charge, the remaining 1.25% has to meet recurring expenses.
It is expected that after giving the flexibility.
It is expected that if the expense ratio will be increased from 2.25% to 2.50% then it will help the industry to boost. And Greater flexibility in the expense ratio will help the  to give more commission to the brokers who leave the industry in absence of right brokerage.

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Insuranse sector and its present condition in India

Life Insurance is the fastest growing sector in India till 2010. Private companies started their business after 2000 as Government allowed Private players and FDI up to 26%.The first private company which had entered into this sector was HDFC Standard Life and now it is known as the HDFC Life. Good insurance companies of the world enter into the market with the partnership of Indian companies. These foreign companies entered into India because of the lucrative potential market. When we see the P/L account of these companies then we get that most of them regularly faces the loss in last 2-3 years. The Indian companies which have entered after 2005 want to pump out their money from this sector. As the limit of FDI investment is 26 %, so foreign companies are not very committed towards their work and when they feel that the market is not good they leave the market after selling their share to another company. Increase in FDI limit is necessary so that foreign companies will enter into the market with their own past experience & more commitment to get success in the new market. As the IRDA regularly intervened these companies because it doesn’t want to give lose to the policy holders.

LIC of India is winner in this sector and running its business successfully because it is the oldest life insurance company of this country and as the Indian people believes more on PSUs. I don’t think that LIC’s plans are better than these private sector players and it also don’t give better return than these companies. But, I do agree that Premium allocation charge (initial charge) & policy administration charge of these private players are more and it should be reduced to provide customer better return. 

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Biggest losser in the share market

Most risky investment for a person is to invest his/her money in the share market. There are many types of players’ trade in this market such as corporate houses, insurance companies, Mutual fund companies, FIIs & retail investors. Corporate houses purchase shares of other companies to take its benefit in future, if the price of these shares will increase or to get benefit at the time of merger or acquisition. Mutual fund & insurance companies purchase shares for their client to give them a good return in the future .FIIs (Foreign Institutional Investors) are the foreign companies which want to invest their money in companies of emerging economies with friendly investors’ policies to get a good return.

 The retail investors are those who buy the share for their own. Some of the retail investors purchase share in higher quantity to keep it for 10-12 years. But most of these are small investors who invest their money to get a regular return from their investment. But, when the market condition becomes worse then the price of share goes down and at that time companies also becomes unable to give any return (means dividend) to its shareholders. So, the purpose for which the retail investors bought their share didn’t fulfilled and because of that they become the biggest looser in the worst market condition.

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Expectation of economic reform

Prime Minister Manmohan Singh has taken the additional charge of finance ministry; in response of this news Indian Market looks bullish. As the rupee, after going to its lowest value taken a come back.Manmohan Singh which was the finance minister in 1991  had brought the economic reform in India with privatization, liberalization and Globalization. When he was the finance minister, the stock market was goes up nearly by 167%.So, the investor’s sentiment is positive towards the market and they expect the economic reform from him. Government has reduced the price of petrol and its positive effect is also seen in the market. It is expected that Stock Market will open in positive on Monday. As  many of the economists said that the position of India currency  in BRIC nation  is the poorest and its GDP growth is also not good but The data shows that the average GDP growth of India for last 8 years is better than Average GDP of  Brazil and Russia.Now we expect that market will take a turn and reach a higher position as the investors expect.

 

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