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| june 23, 2017 |
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Impact 
The Government and RBI are working towards rescuing banks from the perilous problem of bad debts. But, it seems there are no easy and formidable solutions in the offing. With every passing day, the problem of bad debts is mounting. Although the fresh reporting of Non-Performing Assets (NPAs) has slowed a bit, companies already laden with debt are going from a bad to worse situation. And if the problem is not addressed quickly, there can be bigger repercussions of this.
As reported by the Business Standard dated June 20, 2017; out of the sample size of 761 companies listed on Bombay Stock Exchange (BSE); 85 companies reported operating profit lower than their interest obligation during the Financial Year (FY) 2016-17. In FY 2015-16 this number was 67. Moreover, the aggregate outstanding debt of these 85 companies was 5.04 lakh crore in FY 2016-17 as against Rs 4.6 lakh crore reported at the end of FY 2015-16.
Pointing at the exact problems Mr Ashish Gupta and Mr Kush Shah of Credit Suisse mentioned that the “Overall stress remained unchanged in the fourth quarter of 2016-17, with debt having interest cover of less than one still at 40 per cent. The weak continue to get weaker, as companies with interest cover less than one saw a 35 per cent year-on-year decline in their operating profit. The share of debt with loss-making companies rose to 36 per cent from 32 per cent.”
Echoing similar views Mr Dhananjay Sinha, Head of Equity and Strategy at Emkay Global Financial Services said, “A sudden drop in demand after the note ban hit the finances of many companies. We now see a cyclical recovery in the economy driven by Government spending, but this may not be of much help to indebted companies in capital-intensive sectors."
What to conclude?
These developments don't bode well for the prospects of Indian economy. And surprisingly, bulls on the Dalal Street are still hoping against the hope and betting big on the Indian economy.
There's no clarity on who's going to absorb the debt burden of companies who may crumble under the pressure of a debt pile. It's not clear, what would be the scenario in the job market if weaker players in the power, infrastructure and telecom sectors (worst affected by excessive leverages) go belly up.
Amidst all these problems Indian equity markets are hovering near their lifetime highs. PersonalFN believes, investors should adopt a cautious approach to investing, at this juncture. In case, equity assets have increased out of proportion in your portfolio, perhaps, it's the time to get back your allocations to original levels and reviewing your portfolio. Avoid investing in lump-sum at this juncture, as the market appears to be going down rather than up as there are quite a few negatives that may surprise the markets. GST implementation, deficient monsoon, lack of inflows from Foreign Institutional Investors (FIIs) and slower than expected recovery in corporate profits may play a drag on equity markets.
The strategy to follow…
Prefer Systematic Investment Plan (SIP) route offered by mutual fund houses to invest in equity mutual funds. In case you aren't sure about which schemes you should invest in, you can subscribe to the latest unbiased research report released by PersonalFN— Strategic Portfolio for 2025.
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Impact
Nearly 60% of restaurants in Mumbai have AC as well as non-AC sections. And, as you would know, the rate card is different for the same food in both these sections. You pay around 30% more in the AC section for the comfort. So, it’s natural for many people living in the metro cities to prefer non-AC sections to save on the food bill. A few people eat out due to compulsion. Migration to cities for employment makes dining out a necessity rather than a luxury for many of them. Moreover, a large section of the population prefers to eat at non-AC restaurants to keep food bill well within the budget.
Unfortunately, these tactics may not work much once the GST is implemented.
Reason?
The tax rates prescribed under GST are negative for the hotel industry and also for the consumer. Instead of providing relief to the low budget and non-AC restaurants, the GST will hit them the most. Non-AC restaurants will see the rate of tax going up from 6% at present to 12%—a rise of 100%. The blessing in disguise is that the small hotels, dhabas and roadside eateries with a turnover of upto Rs 50 lakh in a financial year, would come under 5% tax slab. A section of hoteliers aren’t happy, as they were expecting the limit threshold limit to be hiked to Rs 1 crore. Five-star and seven-star hotels will come under 28% slab while AC hotels with a liquor license will have to charge 18% service tax.
It remains to be seen how badly the GST regime affects the hotel industry and household budgets. PersonalFN is of the view that, you should maintain a record of all your expenses post GST and compare them with pre-GST expenses. This will help you analyse the real impact of GST on your finances.
If you find your overall household expenses have come down, you should invest the savings as per your asset allocation to meet your financial goals. However, if GST pushes up your budget, you should either increase your income or try to curtail overall expenses.
Please make sure you have prepared a financial plan for yourself which comprises your long-term financial goals and considers your risk appetite. If you find it difficult or time-consuming to create one for you, opt for professional help of a Certified Financial Guardian in your vicinity.
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Impact
It’s a season of farm loan waivers…
Uttar Pradesh, Maharashtra, and now Punjab; states that are competing with one another to waive off the burdensome loans small and marginalised farmers owe. Collectively, these three states are likely to shell out over Rs 80,000 crore in bailing out farmers.
At the grassroots level, many tricks are applied to fit oneself in the definition of “small and marginalised”. The size of farmland is a traditional criterion.
The sad truth is that even after these bailouts, the poor farmer is not going to be rescued from the quandary. This is because many marginal farmers don’t borrow from the institutional sources. As reported by Mint dated June 19, 2017, only 38% of marginal farmers borrow from financial institutions; the rest rely on friends, family members, the local Shylocks, and/or private moneylenders.
For now, the Central Government has remained firm about not providing any support such as a loan-waiver to the State Government in an aim to rein its fiscal deficit target. But it remains to be seen how long it denies assistance in any form. Perhaps, at some point in future, the Central Government may have to assist states in some form or the other. After all, cooperative federalism has always been on the top of the NDA Government’s agenda.
To read more about this story and Personal FN’s views over it, please click here.
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Impact
In the world of finance, your name and the PAN details were your identities so far. Going forward, the importance of PAN is likely to diminish significantly. The Government has made it mandatory for citizens to provide their Aadhaar number along with PAN details for new bank accounts and should be quoted for a transaction above Rs 50,000. For the existing account holders, December 31, 2017, will be the deadline to link their Aadhaar number with their bank accounts. Those who would fail to do so will end up making their bank account non-operative.
The rationale behind this move…
To curb money laundering practices, the Government is believed to have taken this decision by amending the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. Accounts with a transactional limit of Rs 50,000 can be opened without Aadhaar for now. For the initial year, such accounts will remain operational, but after that, the account holders will have to provide their Aadhaar details or offer their Aadhaar application number, if it’s under process, to keep the account operative.
As reported by The Hindu dated June 16, 2017; the notification about the amendment to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005 was released on June 01, 2017; the amendments weren’t gazetted until June 16, 2017.
To read more about this story and Personal FN’s views over it, please click here. |
If you use Paytm’s digital wallet and often hold a surplus balance; there’s some good news for you. Soon your surplus may start fetching superior returns than those offered by banks on savings accounts. Paytm has sought permission from RBI to establish a money market fund to help subscribers productively channelise their unutilised digital cash. If it receives a nod from RBI, 25 crore wallet users will benefit.
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Sold Your Immoveable Property? Here Are The Tax Implications…
Fixed Deposits Vs Debt Mutual Funds: Which is better?
How To Handle Your Paperwork Prudently
How To View And Read Form 26AS
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Interest Coverage Ratio: The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio may be calculated by dividing a company's earnings before interest and taxes (EBIT) during a given period by the amount a company must pay in interest on its debts during the same period.
The method for calculating interest coverage ratio may be represented with the following formula:
(Source: Investopedia)
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Quote: All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock." - Charlie Munger
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