August 2013 – OneMint

SREI Infra 11.75% NCDs Issue – August 2013

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

SREI Infrastructure Finance Limited is going to launch its second public issue of non-convertible debentures (NCDs) of the current financial year 2013-14 from Monday, August 24th. It is going to offer a maximum of 11.75% per annum to the individual investors for 5 years tenor and a minimum of 10.35% per annum to the institutional investors for 3 years tenor.

SREI Infra plans to raise Rs. 200 crore from this issue, including the green-shoe option of Rs. 100 crore. The issue is scheduled to close on September 17th or earlier, depending on the response for the issue. NCDs will be allotted on a first-come-first-serve basis.

Categories of Investors & Basis of Allotment – The investors would be classified in the following three categories and each category will have certain percentage fixed for the allotment:

Category I – Institutional Investors – 20% of the overall issue size

Category II – Non-Institutional Investors (NIIs) including corporates – 20% of the issue

Category III – Individual Investors including Hindu Undivided Families (HUFs) – Rest 60% of the issue

NRIs and foreign nationals among others are not eligible to invest in this issue.

Tenors and Rate of Interest

SREI came up with its first issue in April this year and as compared to that issue, the second issue looks attractive from the retail investors’ point of view. As compared to 10.75% for 3 years and 11% for 5 years in its last issue, this time the company is offering 11.50% and 11.75% respectively.

The bonds will be issued for a tenor of 3 years, 5 years and 75 months (6 years and 3 months) with monthly interest, annual interest and cumulative interest options. The monthly interest option is available only with 5 years period and will carry coupon rate of 11.16%, which effectively is 11.50% per annum.

“Double Your Money” Option – Series V NCDs offer to double your money in a period of 6 years and 3 months and effectively yield 11.72% per annum. Though it is quite attractive to hear doubling of money, I think it is better to go for shorter tenors in case of company NCDs.

Ratings & Nature of NCDs – CARE has assigned ‘AA-’ rating and Brickwork Ratings has given ‘AA’ rating to this issue. Moreover, these NCDs are secured in nature and the claims of its investors will be superior to the claims of any unsecured creditors of the company.

Listing, Demat & TDS – These NCDs are proposed to be listed on the Bombay Stock Exchange (BSE) only. Investors have the option to apply these NCDs in physical form as well as demat form, except for Series III NCDs, which carry monthly interest and will be allotted compulsorily in the demat form.

The interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – There is a minimum investment requirement of Rs. 10,000 i.e. at least 10 bonds of face value Rs. 1,000.

Profile & Financials of SREI Infrastructure Finance Limited – SREI was initially registered with the RBI as a deposit taking non-banking financial company (NBFC). Effective March 31, 2011, SREI got converted into non-deposit taking NBFC and the RBI classified it as an Infrastructure Finance Company (IFC). Later, SREI got notified as a Public Financial Institution (PFI) by the Ministry of Corporate Affairs.

The company provides financial services to its customers engaged in infrastructure development and construction, with particular focus on power, road, telecom, port, oil and gas and special economic zone (SEZ) sectors in India with a medium to long term perspective.

SREI has a national presence with a network of 198 offices all over India and over Rs. 33,330 crore of consolidated assets under management (AUM). SREI’s loan disbursements have grown at a CAGR of approximately 44% in the last four years, with consolidated disbursements of Rs. 15,667 crore for the period ended March 31, 2013 and Rs. 18,600 crore for the year ended March 31, 2012.

Total income on a standalone basis for the period ended March 31, 2013 and March 31, 2012 stood at Rs. 1,666 crore and Rs. 1,181 crore respectively. Net profit for the same periods was registered at Rs. 94.96 crore and Rs. 57.96 crore respectively.

The grey area, with which the whole of the infrastructure finance industry is suffering, has also affected SREI Infra badly. Gross NPAs of the company as on March 31, 2013 stood at 2.77% as against 1.58% as on March 31, 2012, while Net NPAs were at 2.30% as against 1.18%.

SREI Infra NCDs are definitely better than some of the riskier company FDs like Unitech, Gitanjali Gems, Jaiprakash Associates or other lesser known companies. Investors, who are willing to take low to moderate risk and looking for higher returns than bank FDs or comparable company FDs, can think of investing in these NCDs. But, I think it should not be more than 5 to 10% of your total debt portfolio. Investors in the 30% tax bracket should definitely wait for the tax-free bonds or go for the tax-efficient debt funds or FMPs, as these investments should result in higher effective yields for them.

Link to Download the Application Form

REC 8.71% Tax-Free Bonds Issue – August 2013

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

Rural Electrification Corporation (REC) will be launching the first public issue of tax-free bonds for the current financial year from 30th of this month. The company is offering quite attractive interest rates to the retail individual investors with 8.26% for 10 years, 8.71% for 15 years and 8.62% for 20 years. These rates are higher by approximately 0.70% to 1.50% as compared to the rates offered last year.

REC plans to raise Rs. 3,500 crore from this issue, including the green-shoe option of Rs. 2,500 crore. Though the official closing date of the issue is September 23rd, I think the issue should get closed before that due to oversubscription.

The government has allowed REC to issue Rs. 5,000 crore worth of tax-free bonds this financial year and the CBDT notification has mandated a minimum of 70% of this amount to be raised from public issues. As the issue size is Rs. 3,500 crore, if it gets fully subscribed this time itself, I think REC would raise rest of the money through private placements only and it will become the last issue of REC this financial year.

NRIs, QFIs & “Retail Individual Investor” – Non-Resident Indians (NRIs) on repatriable as well as non repatriable basis and Qualified Foreign Investors (QFIs) are also eligible to invest in this issue. The scope of a retail individual investor, investing upto and including Rs. 10 lakhs, has got broadened with the introduction of NRIs and QFIs (as individuals). It includes Hindu Undivided Families (HUFs) also through the Karta.

So, the investors have been classified into the following four categories:-

I – Qualified Institutional Bidders (QIBs) – 20% of the issue reserved

II – Non-Institutional Investors (NIIs) – 20% of the issue reserved

III – High Net Worth Individuals including HUFs, NRIs & QFIs – 20% of the issue reserved

IV – Retail Individual Investors including HUFs, NRIs & QFIs – 40% of the issue reserved

Interest Payment Date & Record Date – As this question gets asked by many of the investors throughout the year, it is better to mention it here itself as the date is known in advance this time. Interest will be paid on December 1st every year and the record date will be 15 days prior to that.

No Cumulative Option – There is no option of taking cumulative interest at the time of maturity with these bonds. Interest will be paid annually.

Safety, Ratings & Nature of Bonds – Being a ‘Navratna’ PSU, REC offers a high degree of safety as far as your investment is concerned and that gets reflected in the ratings assigned to this issue. The issue has been rated ‘AAA’ by four rating agencies, CRISIL, CARE, India Ratings and ICRA. It is the highest rating given by each of these companies. Also, these bonds are secured in nature against certain assets of the company.

Listing – REC bonds will get listed on the Bombay Stock Exchange (BSE) within 12 working days from the closing date of the issue. Investors have the option to apply these bonds as per their choice, either in physical form or in demat form.

TDS & Minimum Investment – As these are tax-free bonds, there is no question of TDS getting deducted, whether you take them in physical form or demat form. Minimum investment required is Rs. 5,000 only i.e. 5 bonds of Rs. 1,000 face value each.

Interest on Application Money & Refund – REC will pay interest to the successful allottees at the applicable coupon rate and at 5% per annum to the unsuccessful allottees.

Tax Treatment on Sale – Listed bonds held for more than 12 months qualify as long term capital assets and if sold thereafter, would attract a flat 10% capital gain tax, without indexation benefit. However, if the bonds are sold prior to holding them for more than 12 months, then short-term capital gain tax would be applicable, as per the tax slab of the investor.

Key Attractions of these Bonds: There were many issues with the tax-free bonds issued last year. There was a huge difference between the interest rate paid to the retail investors and the interest rate paid to other investors. Also, the subsequent buyer from the secondary markets was to get a lower rate of interest. Moreover, the cut from the G-Sec rate was also set on a higher side.

I think most of those issues have got rectified this year. Here are some of the key attractions of these bonds this year:

High Interest Rates – Due to the falling rupee and the unsuccessful measures taken by the Government and the RBI to control it from further fall, the yields of the benchmark government securities (G-Secs), against which the coupon rates of these tax-free bonds get fixed, have risen sharply in the last 45 days or so. 10-year benchmark yield touched a high of 9.47% before falling sharply to 8.25%. Thanks to this jump, the company has been able to offer such attractive coupon rates, especially for the 15 years period.

A word of caution. 10-year benchmark yield has again jumped back to close at 8.78% on August 27th. If the economic fundamentals of the country continue to deteriorate at the same speed as they have been doing, the yields could keep moving higher and the rupee could keep falling further against the dollar. But, I still hope India would come out of the current crisis soon and as the macroeconomic things get stabilised, these rates would look highly attractive again.

High Interest Rates, even if bought from the Secondary Markets – As per the CBDT notification – “The higher rate of interest, applicable to RIIs, shall not be available in case the bonds are transferred by RIIs to non retail investors”. So, the interest rates earned by the retail individual investors this year would remain higher even if they buy these bonds from the secondary markets subsequent to the offer period.

Your eligibility for a higher rate will depend on the number of bonds held in your name on the record date and the same will get tracked by your PAN number. Your holding should not be more than 1000 bonds per issue on the record date to get higher rate of interest.

Till last year, only the first allottees were eligible for a higher rate of interest and the subsequent buyers from the secondary markets were supposed to get a lower rate of interest. This factor will encourage the retail investors to participate in the secondary markets and thereby result in higher liquidity.

Low Differential – The differential between the rates offered to the retail individual investors and the other categories of investors has been cut down to 25 basis points (or 0.25%) only, as compared to last year’s 50 basis points (or 0.50%). This is the best step that has been taken this year. This factor would attract higher participation from the other categories of investors, both during the initial offer period as well as in the secondary markets.

I honestly think that these tax-free interest rates are very attractive. If I compare these rates with the interest rates on bank fixed deposits, the rates look quite similar, but with huge difference of tax applicability. I seriously hope India’s macroeconomic picture should start looking better in the days to come, only then we will be able to enjoy these high rates, otherwise inflation would again eat up all fruits of our hard work.

Link to Download the Application Forms of REC Tax-Free Bonds

If you need any further info or you want to invest in these bonds in Delhi/NCR, you can contact me at +919811797407

IDBI Tax Saving Fund – ELSS u/s 80C

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

IDBI Mutual Fund has come up with a new fund offer (NFO) of its open-ended equity-linked savings scheme (ELSS), IDBI Tax Saving Fund, from August 20th. The scheme seeks to invest predominantly in a diversified portfolio of equity and equity related instruments with the objective to generate capital appreciation and income along with the benefit of income tax deduction u/s 80C of the I-T Act, 1961.

The fund plans to invest at least 80 per cent of its corpus in equity and equity-related instruments and a maximum of 20 per cent in debt and money market instruments. The scheme closes on September 3rd and will reopen for continuous sale from September 17th.

Lock-in period: As with all other tax saving mutual fund schemes (ELSS), this fund also carries a lock-in period of 3 years, after which an investor can redeem his/her investment back to IDBI Mutual Fund whenever he/she wants.

NAV of Rs. 10 Per Unit: The units will be available at Rs. 10 face value during the NFO period and at market-linked NAV thereafter. Even after years of investor education, if somebody still feels Rs. 10 NAV is better than Rs. 100 NAV or Rs. 1000 NAV, then he/she can think of subscribing to this NFO. But, the fact would remain intact that a scheme with Rs. 10 NAV is in no way better than any other scheme with a higher NAV.

Benchmark: The performance of the scheme will be benchmarked against S&P BSE 200, which is an index of the top 200 companies listed on the Bombay Stock Exchange.

Profile of the Fund Manager: I think the fund manager is the most important factor to be considered while investing in any of the mutual fund schemes, especially an NFO. V. Balasubramanian, aged 54 years, is going to manage the corpus under this scheme. He is M.Com. and Certified Associate of the Indian Institute of Bankers (CAIIB). He has over 32 years of experience in the Finance field, with 14 years in the Mutual Fund industry and 16 years in Banking, out of which he worked for 8 years in treasury branch of Indian Bank.

He has been a fund manager with IDBI Mutual Fund since November 2011 and is already managing seven of its schemes, including IDBI Nifty Index Fund, IDBI Nifty Junior Index Fund and IDBI India Top 100 Equity Fund among others. Here is some relevant data for the schemes he is already managing:

As there are already so many tax saving schemes competing in the market with their long-term performance to be judged upon, I dont find any compelling reason for the investors to jump on to this new fund offer. Investors should check the performance of this fund before committing their hard earned money in a tough economic environment.

My thoughts on the Havala logic article

I am sure a lot of you have come across this article that presents a number of charts presenting the USD-INR rate in a time period before the general elections and shows how the Rupee has depreciated every time there has been an impending election.

I came across this article on Saturday, and didn’t think much of it which shows how poor a blogger I am, not because of the substance of the article but because I completely missed its potential to go viral.

I have the following reservations about the claim:

1. How does Congress influence the exchange rate? How do they actually make the Rupee depreciate per their will? Why don’t they just reverse the trend once the election is over? Don’t they have to hoard money the next time there is an election, why don’t they reverse the trend during non election periods?

2. If Rupee was being brought into the country, the price of the Rupee would appreciate, not depreciate.

3. UPA has taken a series of very unpopular steps to try to rein in the Rupee fall, and in the current case, the fall of the Rupee has angered a lot of people who are already quite frustrated with the efforts of the government is every direction. How does the ruling party decide that the 20% extra cash is worth the pain it causes to the populace (in terms of lost votes) and the fodder it gives to the Opposition to exploit this depreciation?

4. Speaking of Opposition, how is it that only Congress is able to benefit from this depreciation, and not the BJP?

5. How much of an outlier is a 15% fall?

In one of the comments, the authors have explained point number 2 by saying that politicians deposit USD in Swiss accounts of businessmen and then those businessmen transfer money in INR in India itself so that takes care of the Rupee not appreciating. If this were happening then yes, I think this is certainly a way that they could overcome the problem of Rupee appreciating when it is send back to India, but I find it hard to believe this is actually happening.

The other points speak for themselves except for 5.

I dug up some exchange rate data since the year 2000, and with some simple Excel work – found out how many times has the Rupee depreciated more than 15% in a 12 month period since the beginning of 2000. Now if you were to just look at months, then there would be just many many months after 2008, but I tried to lump together the data so that when I started with September 2013, the month before that was at least 6 months earlier. Here are the results of that.

Month and Year	Rupee Fall
September 2013	16%
September 2012	21%
January 2012	20%
May 2009	23%
December 2008	24%

After 2008, these falls in a 12 month period have been much more frequent than before 2008. The data in the Havala post is different because at times their range is less than 15%, and at other times their period is more than 12 months. I increased the time frame on my datas-set to 18 months to see what would happen and even those numbers are similar. Prior to 2008, not many big moves, and after 2008, quite a few moves.

Here is a chart on how the Rupee has moved against USD from the beginning of 2000.

This chart also shows that the Rupee has been quite volatile post 2008 but prior to that moved in a narrow range. That’s the only conclusion I can draw from this movement, linking it to Congress bringing back black money during election times makes for a good conspiracy theory, but I simply don’t see how this can be actually carried out.

This is a post from the Suggest a Topic page.

Weekend Links August 23 2013

It is amazing to think that children could write to Einstein and receive a thoughtful response. I really loved this letter about whether scientists pray or not.

This was a painful editorial to read, but how very true, if there was one project that showed why you shouldn’t invest in India, it was this.

Livemint has an excellent piece on Dr. Ambedkar, the economist and his views on the Rupee.

Thoughts from various industry leaders on the current state of the Indian economy.

Nokia tells the Indian government how it is the least favorable place to invest.

I was amazed to learn that honey preserved over 10,000 years ago survived intact.

Very funny, and quite true.

Enjoy your weekend!

On Market Fluctuations

Yesterday was an extremely volatile day at the markets, and while I often remind myself that it is the nature of markets to surprise you, I can never fully take that advice myself, and am always surprised by some of these crazy movements.

I don’t think there was a single person who could have predicted the 400 point up-move that took place yesterday, and while surprising in its own right, it is no more surprising than what the market has consistently done since it existed.

I’m currently reading all of Warren Buffett’s letters to shareholders in a sequence, and I just happened to read the ’87 letter today, which had this great bit of advice about fluctuations in it.

Ben Graham, my friend and teacher, long ago described the 
mental attitude toward market fluctuations that I believe to be 
most conducive to investment success.  He said that you should 
imagine market quotations as coming from a remarkably 
accommodating fellow named Mr. Market who is your partner in a 
private business.  Without fail, Mr. Market appears daily and 
names a price at which he will either buy your interest or sell 
you his. 

     Even though the business that the two of you own may have 
economic characteristics that are stable, Mr. Market's quotations 
will be anything but.  For, sad to say, the poor fellow has 
incurable emotional problems.  At times he feels euphoric and can 
see only the favorable factors affecting the business.  When in 
that mood, he names a very high buy-sell price because he fears 
that you will snap up his interest and rob him of imminent gains.  
At other times he is depressed and can see nothing but trouble 
ahead for both the business and the world.  On these occasions he 
will name a very low price, since he is terrified that you will 
unload your interest on him. 

     Mr. Market has another endearing characteristic: He doesn't 
mind being ignored.  If his quotation is uninteresting to you 
today, he will be back with a new one tomorrow.  Transactions are 
strictly at your option.  Under these conditions, the more manic-
depressive his behavior, the better for you. 

     But, like Cinderella at the ball, you must heed one warning 
or everything will turn into pumpkins and mice: Mr. Market is 
there to serve you, not to guide you.  It is his pocketbook, not 
his wisdom, that you will find useful.  If he shows up some day 
in a particularly foolish mood, you are free to either ignore him 
or to take advantage of him, but it will be disastrous if you 
fall under his influence.  Indeed, if you aren't certain that you 
understand and can value your business far better than Mr. 
Market, you don't belong in the game.  As they say in poker, "If 
you've been in the game 30 minutes and you don't know who the 
patsy is, you're the patsy."

I’ve been buying stocks myself during the past few days and will continue to buy them in the coming days and add more with every little crash, and it is useful to keep these things in mind.

This is a useful reminder as the most recent quarterly results are not exactly sanguine but not very depressing either. If I can hold on to my shares for a very long period of time, then if nothing else, inflation would help boost nominal values.

A time to disinvest?

Rupee has been in a free fall for quite some time now and the government and RBI reaction to the daily price movement is far more frustrating than the Rupee fall itself.

From banning TV imports to squeezing out liquidity – the authorities have not taken a single step to address the structural problems that exist in the economy.

The stock market is also in a free fall since the past few days, and disinvestment is the last thing on anyone’s mind right now. Like most other things, disinvestment has been a total failure in the past few years not just for the money it raised but also because of the nature of divestments that the government has done so far.

Because of the deficit situation the focus on disinvestment has become getting the most money out of share sales, and somehow privatization has been completely forgotten.

If you look at the coal situation, and not even think about Coalgate, even then the whole environment is completely ridiculous.You have a monopoly in Coal India that is the world’s largest producer of coal but the demand is such that India imports massive amounts of coal and these imports have grown this year draining the forex reserves. Why should there be a government monopoly in coal production, and would there ever be a good time to disinvest? Isn’t it better to let private players take charge and have many companies operating in this important sector?

Perhaps the government is not ready to disinvest or privatize big stakes in companies like Coal India but what about companies like Scooters India? Why does the government need to be involved in manufacturing three wheelers and isn’t it better privatize such companies to raise cash instead of creating funds to help sick PSU – it’s not like the government is flush with cash anyway.

No one wants to talk about disinvestment or privatization right now, but a few steps in the direction of privatization and showing that the government is getting out of business will send positive signals, and will be better than increasing import duties on televisions.

Plan for a second stream of income before retirement

Vivek posted the following question on the Suggest a Topic page the other day:

Vivek August 19, 2013 at 3:31 pm

One interesting post would be as an advice to a lot of folks in their 30s to 40s on how to create a secure second income through safe investments so that they can quit their jobs and attempt to chase their passion / dreams or do a startup commercial venture. This is technically not retirement (as most retirement plans tend to be) but more of temporary suspension of income and how it can be offset in the most efficient way.

This is an interesting topic and is something that I’ve given some thought to myself. I won’t restrict myself to the question about the second stream of income, but share some things about this topic that people who have taken this course have told me about, and I feel are important as well.

You need to save to invest

Let’s start with the basics, which I find is hard for a lot of people to do. If you have credit card payments due or have a big car loan or home loan that has an installment due every month then you are probably not saving very much money. If you aren’t saving a lot of money then you can’t invest anything to create a second stream of income in the first place.

You can only save money when your expenses are low, so I believe low expenses are the foundation of this attempt.

Not all earned money is equal

Since we are so used to paying taxes, often we don’t realize how big of a piece the government actually takes. So when you save money that’s actually worth a lot more than making that much extra money in salary because you don’t pay taxes on savings.

Similarly taxes on mutual fund capital gains and FMPs are less than the marginal rate so any income you get from that source is worth a lot more than your salary.

Lastly, when you do a calculation of how much your startup income should be to replace your salary income, consider your take home pay, and not your gross salary. From your take home pay deduct your savings, and usually this should be a comforting number because it is a lot less than simply dividing your gross salary by 12 and hoping your new enterprise makes that much in the very first year itself.

Be prepared to dip into your savings

I don’t think it is practical to think that you can save enough to completely replace your salary at such a young age so if you want to take a sabbatical of sorts to try out your hand in a new venture then be prepared to dip in your savings.

This means that some part (a significant one I would imagine) of your money is invested in assets that you can liquidate easily. If you are invested in FMPs, infrastructure bonds, PPF, NSCs or any other investment which has a long gestation period then you have to ensure that you have other assets that allow you to liquidate them if you need money. Here, you have to remember what instruments truly have a lock in period. Most tax free bonds have a 10 or 15 year time frame for redemption but they trade on the market so if you needed the money you could sell them off fairly easily.

Tax free and tax saving instruments

Don’t invest a lot in tax free or tax saving instruments. For example, tax free bonds are a great source of tax free income when you are in the 30% tax bracket but you don’t need that if you aren’t going to be hitting that level every year, so you don’t need to give up compounding for that (tax free bonds pay out yearly interest that you can’t reinvest in the same thing). A fixed deposit that compounds and reinvests might be a much better option.

Equity investments

Due to the volatile nature of Indian equities, they can make for a great investment if you take advantage of the crashes and stick to an investment plan. Although your first instinct would be to avoid such a volatile investment option since you need money in a medium to short run, I think it is best to have exposure to equities even with this type of a need.

Work part time before you quit completely

I have a few friends who have taken the entrepreneurial route and it is a mix of people who just left their jobs as well as people who worked part time, made some money on the side and then quit their jobs. It’s not always possible to work part time on the side but wherever possible that is definitely the better option. You get to experiment with what you are doing without risking a lot and you get a fair sense of whether it will work or not and then the plunge full time is a lot less stressful. That you already have cash coming in is a tremendously huge plus.

Conclusion

I feel a good strategy to approach this situation is to save a lot of money, make sure your credit cards are zero and you don’t have any other big EMIs due every month and then invest the rest in medium term instruments that have good liquidity and generate a decent return. There are not many instruments that fit this bill and a mix of dynamic bond funds, equity mutual funds and the good old fixed deposits will help you go a long way in achieving this.

Finally, I know a lot of readers fit this bill as well, and I would request them to leave comments here and share their insights on how they managed money when they switched from full time employment to their own venture.

Creating a crisis where there is none

I was really surprised to read today that the government has banned the duty-free import of high-end flat screen (LCD/LED) plasma television sets effective August 26th in a bid to save the falling Rupee.

From about the middle of July when the RBI introduced unusual steps to squeeze out liquidity from the system, the Rupee has been falling even more rapidly, and it is clear to anyone watching that none of these steps are working. The Rupee has fallen about 5.50% from that time and is surely headed towards 65 to a Dollar if they continue with these measures.

Most of the steps the government or the RBI has taken since July have had unintended consequences, and these problems are only going to be exacerbated if they don’t decide to dump this approach.

Disallowing people from bringing in televisions as a piece of luggage would hardly put a dent in the Current Account Deficit, but it will give an incentive to find ways to work around the system which is similar to the fears about gold smuggling that have risen recently.

These are all regressive steps that take us back to the pre 91 era that brought India to its knees and will do the same thing again if we don’t give up this path.

The problem with India’s CAD and Fiscal Deficit (Read: What are the twin deficits?) are not new, and the problems are not caused by something going wrong in the global economy or the work of speculators against India. I wrote about this more than a year ago, and the same holds true now.

All the steps that have been taken so far are aimed at somehow stopping USD from going out of the country but nothing is being done to promote exports or tourism.

I’ve met a lot of European tourists in Goa who find it extremely difficult to follow complex Indian visa laws and have to shorten their stay as a result of that. Easing visa laws is a very easy way to encourage tourism and get more money coming in the country. This is just one example, but there are surely others too.

Another key thing for the central bank and the government is to look at the global markets and compare the steps they are taking with the situation overall. I made a chart of how various currencies have behaved against the Dollar since the beginning of the year, and you can see that most of them have not done very well.

India is not an isolated case, and taking these knee jerk measures makes it look like the government and RBI is running out of ideas and will take no time to go back to the pre 91 era and that will surely scare away both FDI and FII investments.

A look at the present steps makes it feel like we are creating a crisis where there is none.

Thoughts on Current Indian Equity Environment

Indian stocks have done terribly in the past few years, and the only people who are up on their equity investments are those who have invested in stocks heavily during market crashes, or the ones who added money to their SIPs during the crashes. Other than that everyone has had negative returns on their stocks.

The government and RBI announces one terrible policy after the other relentlessly, and the people pay the price for these by literally paying higher prices for everything they buy.

There is no indication that these terrible policies are going to change any time soon. No matter what coalition comes to power next year, there is simply no party that truly believes in liberalization, and economic reform.

What then should someone who invests in the stock market do?

Selling off shares in such a time is disastrous because they are already down a lot from where you would have bought it and you don’t want to sell them all at a loss. Buying more is increasingly difficult because of the painful feeling of watching your recent purchases go down 4 or 5 % in a week.

What then should give someone confidence to buy more shares or just stop from selling their existing holding?

The first thing that I remind myself during these times is that every time the market falls like this – you start feeling that this time the game is definitely over, and all hell will break lose now. The 2008 crisis always comes to mind because not only did it feel like Indian economy will reel for a long time, it felt like the whole world will be like that for a long time to come.

The second thing to remember is that it always feels like a lot worse than it actually is. In real time it is hard to be objective about what has been going around you. If at the beginning of the year – you would have asked me what I would say if the market were down 7% half way through the year – I would have probably laughed – what’s there to say? Come back if the market falls that much in one day. But that’s more or less where we are today but somehow it “feels” a lot worse than that.

Take a look at the yearly returns for the past few years and 2013 till date yourself.

For me, the main takeaway from the chart above is the need to remain invested in the market. I’ve heard several people say that they will start investing when the market situation improves, and they want to wait for the bottom to hit or the uncertainty to subside, but guess what – you will never know when the bottom was hit, and there will always be uncertainty around you. It just doesn’t work that way.

As long as you are diversified – you don’t have all your eggs in the equity basket, and you’re in it for the long haul you should be able to go through these tough times and then book profits when the going is good.