Volatility and SIPs

26 09 2017

Financial advisors advice retail investors to enter stock markets through Systematic Investment Plans , SIPs in short. There are two major advantages of SIPs over lumpsum investment, namely, disciplined regular saving ( Franklin advertises it as a good EMI 🙂) and Rupee Cost Averaging.

Rupee Cost Averaging, means you take advantage of the ups and downs of the stock market by buying more units when the markets are low and fewer number of units when the markets are high, thus keeping the average costs,a tad lower, than if you bought the same number of units every month.

SIPs work better than lumpsum when volatility is high. In a rising market, lumpsum investment of the same amount will give higher returns.

In 2017, volatilty has been relatively very low. The number of days when the markets have moved 1 % down is a lot lesser than previous years.

volatility

Would SIPs of all the Indian retail investors, be the reason why the volatility is low ? As per the AMFI web-site, SIPs are growing rapidly, in August 2017 the SIPs accounted for Rs 5206 crore as opposed to Rs 3497 crore in August last year. So there is  steady continuous buying by Indian institutional investors.

Individually, each investor wanted to benefit from the volatility through SIPs, but collectively, SIPs of all the investors have brought the volatility down. The very reason for entering into an SIP now is questionable !

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Whatsapp Help Groups for credit

7 09 2017

Consumption is growing a lot faster than household incomes. Net result personal indebtedness is growing rapidly among Indians. People are buying more and more items on EMI. Besides the usual cars and two wheelers,even mobiles and holidays are on EMI. Companies like Bajaj Finance and Capital First are making hay. Credit card cos have actually increased the interest rates, when overall interest rates are declining. No need for it, I guess, there is so much demand.

On the one hand the senior citizens are struggling with declining deposit rates, most banks give only 6.5 – 7 %. Credit card companies continue to charge 38 %. Wish peer- to-peer lending grows among Indian families, so that these card companies can be disintermediated.

The networks are already there, the Whatsapp family groups. Along with Good mornings, recycled jokes and fake news, young members who are paying huge interest on their cards can borrow from retired elders who are seeking higher rates. They would be happy with even 10 % p.a.

The digital wallets and UPI based digital payment systems make money transfers quite frictionless.The family structure creates enough peer pressure , not to default. In some practical families, it may be happening already. The Whatsapp help groups is an idea whose time has come.





#BestBooks of 2016 According to EconFinance Twitter

5 12 2016

By @toby_n

EconFinanceTwitter is great. Here people refer me to papers and stories I  would never have otherwise read, and this happens many times a week. As we come to the end of th…

Source: I asked EconFinanceTwitter what their best books of 2016 were – this is what they said





Aswath Damodaran On Tata-Mistry Feud

19 11 2016

Aswath Damodaran, Prof of Finance at the Stern School of Business at NYU is considered an authority on valuation. He has written an interesting blog post on the Tata-Mistry feud.

Here is the link





Urjit Patel’s Signature in Rs 2000 Note

15 11 2016

After the demonetisation was announced, the newly issued Rs 2000 has come into circulation. The Rs 2000 notes currently being issued have the newly appointed RBI Governor Urjit Patel’s signature. urjit-patel-signature

PM Modi and FM Jaitley have claimed that the preparation and printing of currency notes were being secretly done for the last six months. This would mean the Rs 2000 currency notes should have been under printing for the last six months.

But, Urjit Patel was chosen as the RBI Governor only on August 21, 2016 and he took charge from Raghuram Rajan only on September 4, 2016, just two months before the November 8th announcement.

Something is amiss. Either, the government is lying when it says it has been printing currencies to prepare for demonetisation from the last six months or they had decided  Urjit Patel as the next RBI Governor, atleast four months before the official announcement.

It can be speculated that when Raghuram Rajan made an announcement on June 18, 2016 that he would not take the second term as Governor, already Urjit Patel’s signatures as the next Governor were being taken in the new Rs 2000 note. This could have well led to Rajan’s decision to return to academia.





Cash in the Wallet

14 11 2016

The announcement on November 8th by government to demonetise Rs 500 and Rs 1000 currency notes came like a sudden surprise to Indians. This announcement was followed by one day of banks ATM closure and an additional day of ATM closure.

Even the tax paying, educated middle class, who had nothing to hide by way of black money, was confronted with the challenge of how to pull through the next few days expenses with minimum cash using the lower denomination notes of Rs 100, Rs 50 and lower.

Even after the banks and ATMs opened from 11th November onwards, there were limits prescribed by RBI for exchange, withdrawals and ATMs. Also, the queues were very long and there was considerable pain to be experienced in withdrawing one’s own money.

That is the time, when I was faced with a question of how much cash to withdraw and keep in the wallet. In days when banks and ATMs would be functioning normally, I would draw a large amount in the beginning of the month for all the monthly payments and then I would withdraw a smaller amount sometime in the middle of the month for the  rest of the month’s expenses.

By withdrawing nearly 15 days expenses at one go, I was essentially losing out on some savings bank interest and also running the risk of losing money, if I lose the wallet. But this costs and risks were entirely mine. But in a cash crunch, if I overdrew, someone else was not getting the essential cash for their needs.

I knew that cash in the wallet or house is a psychological thing. So, I ran a straw poll among my friends on Facebook. I asked them, how many days expenses they would keep as cash in their wallet or house. There were 23 responses in all.

A. Less than 2 days – 3
B. Between 2 and 4 days – 2
C. Between 5 and 7 days – 8
D. More than 7 days – 10 

It is a biased sample of my friends so they are majority male, urban, salaried class, highly qualified people with families. The median age would be 45 years.

From this poll,it appears even when people have cards and electronic wallets, they find comfort in keeping 7 days or more expenses in the form of cash in their wallet. Many mentioned that they have 15 days of expenses in the form of cash with them.

My friends seemed to be quite like me. But it set me thinking, is this appropriate in this time and age ? Is there a need for so much cash in the wallet or home ?

Talking for myself, I reflected on why I was keeping 15 days expenses as cash at most times. I could think of the following reasons :

  • Habit –  Being a salaried person, most expenses are bunched at the beginning of the month. Going to bank in the beginning of the month and withdrawing money for monthly expenses has become a habit. The only change now is instead of walking into a bank branch, I visit the neighbourhood ATM.
  • ATM limits – As there are upper limits of daily withdrawal in most banks ATMs, I am compelled to go one more time at least during the month. This I normally time it in the middle of the month or when cash situation reaches below a limit.
  • Comfort of cash – Despite the cards and PayTM, when I set out of house I feel there should be enough cash. Just in case, I need it.No logic. I am gone past the age when I used to keep less cash in the wallet to avoid impulse purchases. These days, most spending is done on the cards and yet the cash continues to occupy the wallet. While travelling this fear multiplies, even when I know most airports and cities I go to have ATMs.
  • Emergency – As a family person, one wants to be prepared for a sudden health issue or be prepared to travel at short notice. But actually when they come, the 15 days expenses that you keep in the form of cash may be too less, so you end up rushing to an ATM immediately. Also, most hospitals and airlines would accept cards.

Most people of my age who started earning and spending money before the cards and ATM era, would continue to believe and hoard cash than is necessary because of old habits. This demonetisation exercise gives us a chance to recalibrate our cash requirement.

 

 

 

 





Linkfest on Demonetisation

10 11 2016

On 8th November, PM Modi announced demonetisation of Rs 500 and Rs 1000. Here is a selection of articles by various economists and commentators on this big decision.

  1. Demonetization – Witless and Anti People by Prabhat Patnaik in Citizen
  2. Surgical strike on old Rs 500, Rs 1000 notes by Ajay Shah in his blog

  3. NDA Demonetises Rs 500 And Rs 1,000: Modi’s Surgical Strike Against Black Money Stuns All by R .Jagannathan in Swarajya

  4. Here’s What Raghuram Rajan Thinks Of Currency Demonetisation in Huffington Post

  5. Introduction Of Rs. 2,000 Notes A Puzzle: P. Chidambaram in NDTV
  6. Note demonetisation: 86% of Indian currency has been frozen overnight by Anupam Gupta in Scroll

  7. India’s ill-timed paper chase by Andy Mukherjee in Bloomberg
  8. Modi move a huge blow to purchasing power, may backfire on PM : Swaminathan Aiyar in ET
  9. How long India will get all its cash back – Sahil Kini in LinkedIn
  10. Demonetisation : we are paying the price for loving cash too much – R.Jagannathan in Swarajya
  11. Theatrics on Black Money : EPW
  12. No proof required : Big Bang or Big Thud : Surjit Bhalla in Indian Express
  13. Wealth transfer from rich to poor : Bibek Debroy in NDTV
  14. You have been warned : Pratap Bhanu Mehta in Indian Express
  15. Demonetization is a hollow move : Pronab Sen in Mint
  16. Even as world changes under Trump, India’s currency shortage will stay for months : Saumitra Chaudhuri in Economic Times
  17. Wiping India’s blackened face : Gautam Pingle in New Indian Express
  18. Committing suicide also radical, says Arun Shourie on notes ban in NDTV
  19. Demonetisation to drag down FY18 Growth to 5.8 % : Ambit Capital in Mint
  20. Demonetisation is a game changer : Deepak Parekh in Quint
  21. Most sweeping change in currency policy in the world – Larry Summers and Natasha Sarin in his blog
  22. India’s currency exchange and the curse of cash – Kenneth Rogoff in his blog
  23. Demonetization in a booming economy is like shooting at the tyres of a racing car – Jean Dreze in Economic Times
  24. Former RBI Governor Y.V. Reddy on Black Money, Tax Evasion and Lawlessness in India – YV Reddy in The Wire

  25. Six battlefronts for the war on corruption– Vijay Kelkar and Ajay Shah in Mint
  26. The cashless economy of Chikalthana – P.Sainath in PARI

  27. Purging the poor – Mukul Kesavan in The Telegraph
  28. The chattering classes just don’t get this surgical strike – Swapan Dasgupta in TOI

  29. 10 Pieces That Dissect Threadbare Demonetisation And Its Aftermath – Huffingtonpost
  30. Demonetisation: The good, the bad and the ugly – Montek S.Ahluwalia in Mint
  31. Revenge No Development Strategy: Populist nationalism cannot paper over economic chaos unleashed by demonetisation drive – Ruchir Sharma in ToI

  32. Subir Gokarn hails monetisation, needs to be done frequently – Economic Times
  33. S.Gurumurthy explains why demonetisation was needed and how it will help the India growth story – Swarajyamag

For following all the news and views as it is happening on demonetization, you can also follow the Liveblog in Medianama.








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