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| September 09, 2016 |
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Impact 
"No duty is more urgent than that of returning thanks…"-- James Allen
In today's world, only a few of us indeed manage to put James Allen's valuable thoughts into action. You might come across many people complaining about the functioning of Government agencies and establishments. There would be no dearth of individuals who believe all public servants are alike—inefficient. But it would be really discourteous of us if we do not acknowledge the significant work some Government institutions and their heads do. Take the example of RBI and that of the outgoing Governor, Dr Raghuram Rajan. Under Dr Rajan, RBI breathed fresh air, and it's no secret anymore. However, what's still unknown to many is the work RBI did for the common man in the recent times, especially since Dr Rajan took the charge.
Some of the prominent changes that happened lately are as follows:
One can easily exchange soiled and mutilated notes now: Given the varied climatic conditions in India, maintaining bank notes in good form is a task for the central bank. The acceptability of old and soiled notes is poor among masses. This creates disruptions in the payment system sometimes. To address this issue to an extent, RBI ordered banks to accept a maximum of 20 soiled notes from an individual in a day, who wants to exchange them for new. The daily upper ceiling per person is Rs 5,000. All banks are required to provide this service free of cost.
Consumers are safeguarded in case of online frauds: As the number of bank customers using electronic payment modes is going up, the instances of online scams are rising as well. So whether it's a case of unauthorised transactions performed at ATMs or online, customer is shielded from the financial loss to a great extent. Recently RBI issued a circular stating that the victims of frauds will not have to bear any financial loss in case they report the same to their banks within 3 working days. If the intimation is delayed further, the liability of the victims of the fraud would be restricted to Rs 5,000. Scams reported after 7 workings days will make customers liable to bear the loss to an extent as determined by the policy approved by the bank board. The banks must resolve any complaint within 90 days. However, any fraud happening because of the negligence of the customer, will not make bank liable to compensate the customer. The burden of proving the negligence on the part of customers will lie with banks.
ATM Upgrades and consumer safety: RBI observed that while the country has adequate infrastructure to accept and process EMV Chip and PIN cards at Point of Sales (POS); the ATMs largely process the card transactions data from the magnetic stripe. This makes cards vulnerable to skimming and cloning attacks although cards are EMV Chip and PIN based. Taking this into account RBI directed banks to upgrade the ATM network that is equipped to process EMV Chip and PIN cards. September 30, 2017, is the deadline for banks to fall in line.
Minimum Penalties to savings account holders: It has been a common practice for banks to charge a penalty to savings account holders in case balance in their account follows below the minimum limit prescribed by the bank. Although this right of banks still remains with them, RBI has asked them to send intimation to their customers about the non-compliance. If customers fail to restore the balance within a month of notice, only then the banks can levy the penal interest. Further, in the case of dormant accounts, balance can't slip into negative due to bank charging penalties for non-maintenance of minimum balance.
Free credit report once a year: Your credit score speaks a lot about your credit behaviour. Banks heavily rely on your credit score while sanctioning new loans. The Credit Information Bureau (India) Limited (CIBIL), which is governed by the central bank, has decided to provide a free credit report every year. The RBI believes a free report may help create awareness among borrowers about their creditworthiness and may assist them in improving their credit behaviour.
However, the account of work RBI did for the common man under Dr Rajan doesn't end there. There have been many more initiatives/announcements such as the establishment of payment banks and issuance of prudential norms for banks selling third-party investment products, to name a few.
PersonalFN believes, RBI has always worked for the betterment of all stakeholders. However, under Dr Rajan, the common man was in focus always. Switching the benchmark from the Wholesale Price Index (WPI) to the Consumer Price Index (CPI) for gauging the inflation was a cautious move made to shield the common man's savings from the ill-effects of inflation. RBI's insistence on banks passing on the benefits of rate cuts they enjoyed was also customer centric.
Like a true academician and professor, Dr Rajan remained impartial and objective. Fortunately, Dr Urjit Patel, the new governor, belongs to the same school of thought.
What, in your view, is the biggest contribution of Dr Rajan as the RBI chief? share your views here Facebook | Twitter
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Impact
Those who have seen Usain Bolt running a race, say that he literally mocks the competitors with his speed. However, the mighty bull on Dalal Street is galloping at such a pace that even the world's fastest man might also develop a complex.
Top-to-Top
Data as on September 08, 2016
(Source: NSE, PersonalFN Research)
On September 08, 2016, Nifty Midcap made a new high while Nifty 50 was at a kissing distance from its life-time high it had reached on March 03, 2015. From February lows, Nifty Midcap is up whopping 47.89% while the Nifty 50 has surged 28.4%. From the beginning of the Calendar Year (CY) 2016, Nifty Midcap has generated 15.3% returns while Nifty has yielded 12.4% returns. Although, such impressive moves have attracted a huge money into stocks and have drawn many new investors to the market; they are posing a few challenges as well. At this point, the tussle between bulls and bears seems evenly balanced, as bulls are likely to exhaust sooner or later, and bears have been waiting for the right opportunity to ground the bull. Well, if you don't want to get trapped amidst the fight between two, you must adopt a cautious approach at this point.
You first need to understand what drove the markets higher. The possibility of Federal Reserve (Fed) in the U.S. maintaining the lower rates for longer than expected got reinforced with job market data for August came worse than anticipated. On the back of weakening economic condition in China, Fed went slow on raising interest rates throughout 2016. The robust sentiment of the global investors, supportive domestic factors provided the tailwinds to stock markets. Good monsoon, fiscal stimulus in the form of implementation of One-Rank-One-Pension (OROP) and the 7th Pay Commission recommendations were the major positives for the Indian markets. Moreover, passage of GST sent out a strong message to the investor community. On the other hand, heightened hopes of policy rate cuts by the RBI and subsequent lowering of interest rates by the banks made investors enthused about equities.
All the aforesaid factors are expected to push corporate earnings up. Such optimistic expectations are driving markets and many individual stocks way beyond valuations that can be justified with the current earnings. This is what makes situation tricky for everyone including individual and institutional investors.
What to expect?
While better corporate performance and stable macro-economic environment may continue to drive the markets up as long as the money flows uninterruptedly. Disappointing corporate performance, global headwinds and high valuations remain the primary threats. At this juncture, investors need to more cautious. Those investing through mutual funds may be better off if they stick to the funds with a proven track record. Opting for Systematic Investment Plans (SIPs) while investing in equity oriented mutual funds is advisable.
In case you find it difficult to select a winning mutual fund scheme on your own, you may opt for unbiased mutual fund research services offered by PersonalFN.
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Impact
The Indian judiciary system is painfully slow to deliver justice for so many reasons that it deters many citizens from turning to the court of Law and her auxiliary authorities. The proof is in the pudding when we are advised, in legal matters, by a family member or well-wisher, "A wise person should avoid taking legal recourse and try settling disputes mutually."
To top it all, if you do lock horns with any Government authority, be prepared to extend a tremendous amount of patience to withstand the legal process as well as have deep pockets to be able to afford the direct and indirect costs associated with fighting a case. You run one more risk. As the time elapses, the contingent interest liabilities (on the original dues) and penalties pile up. After fighting in courts for 7-10 years, losing a case would be a nightmare considering the staggering penalties you would have to then pay.
If you just think about direct taxation matters, the first Appellate Authority is flooded with nearly 3 lakh cases seeking verdicts, as India's finance minister quoted in his budget speech this year. The disputed amount is about Rs 5.5 lakh crore, which is close to 2.5 times the amount that the Indian Government allocated for the development of infrastructure in Budget 2016-17.
Why are so many cases pending?
Calculation of tax liability is the bone of contention between assessees and the tax authorities on most of the occasions. Assessees themselves are required to assess their income after taking into account various tax provisions. Disputes arise when the tax authorities feel the assessee has wrongly claimed expenses or has not considered income that should have been considered or under-reported income for any other reason. Many a time, even assessees know they are at fault, yet they fight a case just to kill time so as to avoid immediate liability. On many occasions, the assessees, especially small businesses and HUFs, are misguided by their chartered accountants and lawyers, the biggest beneficiaries of delays in the delivery of justice in India. After walking halfway, many taxpayers realise their mistakes and know the verdict may go against them. Still, they are forced to continue because backing out halfway is discouraged.
To read more about this story and Personal FN's views over it, please click here.
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Impact
Many shopaholics live to buy high-end brands and products during a sale. That's the time when products are available for a discount and after the sale period, the new products are back in stores at a premium.
Similarly, value investing involves identifying fundamentally sound stocks that are trading at a discount to their fair value. But investing in value funds is not as simple and easy as purchasing garments during a sale.
It is noteworthy that; value investing refers to buying stocks whose market value has severely deviated from their fair intrinsic value. Unlike market value, which is readily quoted, intrinsic value is not easily available and has to be estimated by conducting a thorough fundamental analysis. Fundamental analysis includes evaluating the financials of the company with help of various ratios; but for valuations, the important ones are: Price-Book value (P/B), Price-Earnings (P/E), Dividend Yield, Price-to-sales.
To read more about this story and Personal FN's views over it, please click here.
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You might have bought stocks of many companies on the Bombay Stock Exchange (BSE) so far, but now you are likely to get an opportunity to buy the stock of BSE itself in days to come. It is believed that India's oldest stock exchange is likely to file the draft prospectus for launching an Initial Public Offer (IPO).
Well, if the market rumour is believed to be true, you shouldn't get carried away by the brand name and the goodwill of BSE. PersonalFN believes, you should pay closer attention to how attractively the IPO is priced considering the future growth opportunities.
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Value Trap: A value trap is a stock that appears to be cheap because the stock has been trading at low multiples of earnings, cash flow or book value for an extended time period. Stock traps attract investors who are looking for a bargain because these stocks are inexpensive. The trap springs when investors buy into the company at low prices and the stock never improves. Trading that occurs at low multiples of earnings, cash flow or book value for long periods of time might indicate that the company or the entire sector is in trouble, and that stock prices may not move higher.
(Source: Investopedia)
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Quote : "Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage."- Peter Lynch
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