 |
| October 30, 2015 |
| |
| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 26,656.83 | -557.77 | -2.05% | | Re/US $ | 65.31 | -0.48 | -0.74% | | Gold Rs/10g | 26,675.00 | -290.00 | -1.08% | | Crude ($/barrel) | 47.19 | -0.64 | -1.34% | | F.D. Rates (1-Yr) | 6.25% - 8.00% | Weekly changes as on October 29, 2015
*S&P BSE Sensex value as on October 30, 2015 |
Impact 
Winter is about to set in and many of you have probably started planning your vacations. From hill stations to beautiful beaches to national parks and wildlife sanctuaries, you have a whole host of options. Law makers may not be as lucky as you are this session.
The joint secretary of the Department of Economic Affairs, Mr. Manoj Joshi, recently told media that the finance ministry is planning to propose the new bankruptcy law in the winter session of the parliament. This makes the winter session very crucial with a slew of bills awaiting the nod of law makers. The new code on bankruptcy is of immense importance for corporate Inc.
Furthermore, the Government is pondering of establishing a new regulator to oversee bankruptcy cases. While speaking to Economic times a few days back, Mr Joshi said, "Why should the government let go of a national asset (company) if the management is unable to run a company? Under the new code, the main aim would be to save the asset and maximise the value.”
If all the provisions suggested by the TK Vishwanathan committee are accepted, many special purpose funds may find it profitable to invest in debt laden and unprofitable companies. The task for these funds would be to successfully turn them around and get them in green.
At present, in the absence of any formidable law on bankruptcy, Indian market remains capital-starved. Though there are legal provisions to protect lenders in the current structure, but laws such as Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI act.) or Sick Industrial Companies Act give promoters (borrowers) an edge over lenders. In short, the current laws are pro-industry and pro-promoters.
What changes will the new bankruptcy law bring? - It will help protect rights of all lenders, including lenders who give unsecured loans
- Effective policy mechanisms will encourage special situation funds to acquire stressed assets, turn loss making companies into profit making ones, and enable them to finally sell off their stake for a profit.
- Effective bankruptcy law may help reduce the strain on conventional financial channels such as banks.
- Debt markets may deepen as investors may start looking beyond sovereign and "AAA” rated bonds.
- As companies turn around, huge amounts of capitals will be unlocked
- The new code may help achieve higher economic growth
PersonalFN is of the view that the new code will be 'pro-investor’. In India, given the poor state of corporate governance in many sectors, having a watertight law to deal with bankruptcy cases is a critical. It will not only encourage investors to invest in corporate debt across rating profiles but also establish a check on unscrupulous managements.
|
Impact
Recently, a person who enjoys the reputation of an 'emerging market investment guru’, spoke candidly to BusinessLine (interview published on October 25, 2015). Although he touched upon several topics, his remarks on the Indian taxation system were spot on. He said, "Today, doing business in India is like doing business across 29 countries, with each State having its own rules, taxes, and so on. The faster it gets done, the better.” Undoubtedly, tax laws affect the business environment to a large extent.
Many industries within India echo the need for tax reforms. The simplification of tax rules has been the demand made across the board. Along with mutual funds and other financial institutions, Foreign Institutional Investors (FIIs) also hoped for the same.
Mutual funds and other financial companies that are concerned about their growth prospects presented a 'wish-list’ to the finance ministry. Deliberations of industry players and the finance ministry were aimed at collating suggestions and inputs about how the ease of conducting business could be enhanced. Through such discussions at a broader level, the finance ministry also aimed at recognising the scope of introducing policy reforms in financial markets.
Apart from taxation, the following issues were discussed at length: - Improving the reach of financial products among retail investors
- Providing depth to equity markets
- Increasing retail participation in debt markets with special focus on corporate debt markets
- Development of market infrastructure
The Industry made a few suggestions as well. They include:
- Allowing unified Know Your Client (KYC) procedure. Further, e-KYC should also be permitted
- Restoration of exemption from Securities Transaction Tax (STT)
- Creating awareness and spreading financial literacy should start at a school level. A subject should be included in the school curriculum.
PersonalFN is of the view that such exchange of thoughts among regulators, industry leaders, other participants, and the Government may help introduce next level of reforms in the financial sector. The suggestion about introducing financial literacy at a school level has been one of the best suggestions so far. PersonalFN has always believed that there is no substitute to educating investors if retail participation has to increase.
Nonetheless, mutual fund houses, insurance companies, stock brokers, and other intermediaries should become more accountable to their investors. Mere improvement in market infrastructure and processes won’t ease much. Launching New Fund Offers (NFOs) at the market top, promoting high-commission yielding products that are unsuitable to investors and overstating the expected returns from investments may continue to mar the progress of financial sector. Such practices may make investors lose faith in financial assets. They often end up feeling cheated and disgusted. It’s no wonder Indians have preferred physical assets over financial assets for years.
|
Impact
Over the last few years, Mr. Virat Biyani (name changed) runs an upmarket clothes retail store in a classy locality. On one occasion, a rich man's son, a spoiled brat visited his showroom and wanted to buy a couple of dark-wash denims on credit, each costing Rs 4,000. Mr. Biyani knew the father of the teenager personally and he secretly phoned him to inquire whether it was okay for his boy to be given credit. The wealthy father was equally concerned about the buying behaviour of his child and after a long pause, He told Mr. Biyani to allow the credit purchase, "This time it's okay but if he turns up again in future with such demands, please you say NO". Agreeing to this, Mr Biyani saw the thrilled teenager off with the designer jeans.
After a couple of months, a similar incident happened but Mr. Biyani ignored the rich father's words from the last time. Mr. Biyani thought-Rich dad, though he would want to, won't turn down his only child's demand and will pay the dues anyway. Subsequently, Mr. Biyani allowed the shopaholic teen to continue to buy more stuff. When Mr. Biyani sent the bills to child's father, the 'wealthy' father was furious for the shop owner's lack of scruples. Fear of losing business opportunities or the overconfidence in assessing the situation can make a businessman act irrationally sometimes.
In the world of finance, people entrust mutual funds with their hard-earned money but the harsh reality is many mutual funds often play Mr. Biyani...
Mutual Fund houses show similar behavioural patterns. Going by their investment strategies, it seems a few fund houses are (over)confident about their abilities as well as their assessment. They are afraid that they might even lose market share, if they don't take calculated risks. But the fact of the matter is that they aren't learning from their history, the past mistakes.
To know more about this and PersonalFN's views over it, please click here.
|
Impact
Life in the fast lane is often stressful and to de-stress, people try oodles of things. Taking short breaks at regular intervals might be the healthiest way, whereas using opioids could be one of the most dangerous ways. Doctors often warn against the overdose of pain-killers and the U.S. Food and Drug Administration (FDA) released a guide on the Safe Use of Pain Medicine. While it gives you a comprehensive perspective on pain medication, it also gives you a strong, straight-forward message. It says, "Pain medications are safe and effective when used as directed. However, misuse of these products can be extremely harmful and even deadly." Unfortunately many people focus on the first line and miss reading the last one.
This is not only the case with pain medication. It has more to do with the nature of human tendencies. Now, for example, the monetary stimulus announced by many developed and few developing economies. In economics, there are theories that support monetary stimulus under tough conditions. There has been enough evidence to support that economic activities can be invigorated with monetary stimulus. But at present, it seems the world is too tilted towards stimulus. A pain-reliever may 'kill' the pain but it can't eradicate the root cause. Similarly, monetary stimulus can't solve deeper problems on most occasions. Still, every time stimulus is announced, global capital markets rise anticipating sunny days.
To read more about this news and our views, please click here.
|
- Growth in the banks’ loan disbursals is a good indicator to gauge economic activity. Going by the latest data available, it seems the Indian economy is still parked in the hangar.
For the fortnight that ended on October 16, 2015, credit growth stood at 9.79% on Year-on-Year basis. In particular, Sub-10% credit growth looks gloomy considering the on-going festive session which normally sees higher borrowing. Loan growth on the corporate side has been lacklustre and banks have been depending heavily on retail borrowers. At 11.18% during the same time period, deposit growth remains weak, but stronger than the credit growth.
In the recent times, the RBI cut policy rates aggressively indicating that it encourages the borrowing for now. However, banks have failed in passing on the benefits of these rate cuts to borrowers. Sooner or later, banks will have to fall in line and cut lending rates. What remains to be seen is if this encourages people to borrow more.
Remember to first analyse your repaying capacity before acquiring any loan. Balancing expenditures and liabilities effectively may give you the right foundation to accumulate sufficient funds and fulfil your financial goals. |
Bankruptcy: A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.
(Source: Investopedia)
|
Quote : "To be an investor you must be a believer in a better tomorrow." - Benjamin Graham
|
| |
| © Quantum Information Services Pvt. Ltd. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Private Limited Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 CIN: U65990MH1989PTC054667 |