Friday, July 27, 2007

Monetary Policy in India; Review on July 31

RBI will have a review on it's monetary policy on 31st July. I have been grappling with concept related questions and issues on interest rates, exchange rates, capital account convertibility. I guess that the monetary policy review due on 31st July will have some answers.

What are the questions that baffle me? They are:
* Will we have a soft interest regime now when we have controlled inflation?
* Is the appreciating Rupee good for the consumer? I hear that it is bad for the export oriented industry, especially the IT industry.
* Does the appreciating Rupee make India more competetive? Or is it that that now when India is becoming more competetive, the Rupee will appreciate regardless of whatever the RBI or the Government does?
* In other words, should the RBI intervene or let the market forces control exchange rates?

India Knowledge Wharton has a very nice article on the issue. Am keenly watching Ajay Shah's Blog for more insights.

India's first online weekly on personal finance

Wednesday, July 25, 2007

Impact of Financial Literacy on Indian Economy

I am trying to understand the impact of financial literacy levels on the Indian Economy. Let me elaborate by giving some examples of financial illiteracy:

- There are only 5-6 million Mutual Funds subscribers compared to
approx 150 million Insurance subscribers
- Insurance in India is looked as an instrument of tax arbitrage and
an investment product rather than an insurance product.
- Susan Thomas mentions, " In 2004, there was a flow of Rs.60,000
crore of premium income going into the insurance industry. Of this, as
as Rs.6,000 crore, or roughly 10%,went back to sales agents. ".
- Equities give the best returns and you are putting your money in a
professionally managed corporate organisation. Compare this with your
insurance products which give much lesser returns and your money is
in the Government which is inefficient with your money, to say the least.
- The total AUM under Mutual Funds is about Rs 3.5 lakh crores while
LIC alone manages funds worth more than Rs 6 lakh crore

My point is that a more literate populace would buy better financial
products leading to better utilisation of the money. Things like better
saving, improved efficiency of the money in turn might have some effect on
the Economy.

How do we do it? Internet is a powerful medium and I saw these sites by the Australian & USA Governments which are very useful.

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Tuesday, July 24, 2007

How the Financial Sector was Reformed in India

Ajay Shah has uploaded this article by Susan Thomas on how the financial sector was reformed. Insightful and very useful.

While talking about some problems in the Insurance industry, Susan Thomas mentions, " In 2004, there was a flow of Rs.60,000 crore of premium income going into the insurance industry. Of this, as much as Rs.6,000 crore, or roughly 10%,went back to sales agents. "

This makes a case for gigantic efforts on improving the financial literacy levels. What is the way of doing it?

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Monday, July 23, 2007

What is your Human Life Value

Heard of this yaksha question: What is the greatest mystery on earth? Yudhisthir answers, "Every one has to die. But no one thinks that for himself. This is the greatest mystery."

That, I feel, is the paradox that makes people avoid life insurance!

That also makes agents take the wrong line of selling Insurance as a tax saving and/or Investment product (ULIP).

So what should we do?

Start with calculating your Human Life Value (HLV). A very simple way of looking at it is as follows. Imagine a monthly income of Rs 10000 and the net income provided to the family is Rs 8000 after deducting Rs 2000 for personal expenses. Thus the annual income provided to yr family is Rs 96000. The amount of money which will earn Rs 96000 pa at 8% interest rate is Rs 12,00,000. This is only a representation of the value of HLV. It is not the exact way of calculating yr HLV.

The future income growth, yr income generating assets, liabilities, spouse income, children's education, etc are also to be factored in.

Right now u can
go to this Page to calculate yr HLV from Bajaj Allianz. Another link is from Metlife Insurance

Also click on Insurance Industry to see a ppt on Insurance as an emerging industry.

Indian consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one's family in case of death of breadwinner.

Friday, July 20, 2007

Saturday, July 14, 2007

10 ways to stop those Sales Calls

1) After the telemarketer finishes speaking, ask him/her to marry you.
2) Tell the telemarketer you are busy at the moment, and ask him/her if he/she will give you his/her home phone number so you can call him/her back.
3) Ask them to repeat everything they say, several times.
4) Tell them it is dinner time, BUT ask if they would please hold. Put them on your speaker phone while you continue to eat at your leisure. Smack your food loudly and continue with your dinner conversation.
5) Tell them that all business goes through your agent, and hand the phone to your five year old child.
6) Tell them you are hard of hearing and that they need to speak up...louder...louder...louder!
7) Tell them to speak very slowly because you want to write every word down.
8) If they start out with, "How are you today?",say "I'm so glad you asked, because no one these days seems to care, and I have all these problems............"
9) Cry out in surprise, "Helen, is that you? I've been hoping you'd call! How is the family?" When they insist they are not Helen, tell them to stop joking. This works especially well if the telemarketer is really MALE.
10) Tell the HSBC call center guy to call on your office number - and give him the ICICI call center number.

Friday, July 13, 2007

India’s Equity Market Reform Article by John Echeverri-Gent

Ajay Shah has uploaded this article by John Echeverri-Gent on the Politics of market microstructure [pdf] about the reforms of the Indian equity market. It is forthcoming in a book: India's Economic Transition: The Politics of Reform, edited by Rahul Mukherji, Oxford, 2007.
Some excerpts out of the 30 odd pages:
  • He examines the politics of equity market microstructure in India. It argues that officials in the Ministry of Finance generated much of the impetus for reform. Three factors motivated these officials to become agents of change. First, their experience made them acutely aware that public sector resources were inadequate to meet India’s developmental needs. Second, as the 1990s progressed they were increasingly aware of the global best practices that developedin the wake of technological change. Finally, the legal infrastructure that regulated Indian equity markets provided them tremendous authority over the exchanges. Under the Securities Contracts (Regulation Act) 1956, the Ministry of Finance enjoyed the power to grant or withdraw recognition to any stock exchange. It also had the power to direct the exchanges to make or amend their rules, supersede the governing body of any exchange, and suspend the business of an exchange.
  • By 2001, reforms brought India up to par with the global standards for virtually every aspect of its equity market microstructure. The ‘open outcry’system that restricted trading to the floors of stock exchanges in India’s metropolises was replaced by screen-based, electronic order-book systems that instantaneously linked traders across the country through the world’s first satellite trading system. Virtually all trading took place on a dematerialized basis through a central depository. The deeply flawed account period settlement system was replaced by a T+2 rolling settlement that is one of the most efficient systems in the world, and badla or carry-forward trading gave way to a rapidly developing derivatives market. As a consequence of these changes, the total value of transactions in securities has grown dramatically over the last ten years from Rs 1.7 billion in 1994–5 to Rs 50.8 billion in 2003–4.
  • All this is not to suggest that no problems remain. The micromarket structure of the primary market (despite its revival since 2003–4, in part because of the introduction of a screen-based book-building system) is still in need of reform. The share of household savings invested in securities is small and has declined since the early 1990s. The mutual fund industry remains underdeveloped, and the regulatory capacity of SEBI needs enhancement.
  • Nonetheless, the transformation of Indian equity markets is a remarkably successful chapter in the story of India’s economic reform.Three factors help to explain this success. First, technological change in the form of electronic trading systems and the development of new financialproducts created substantial opportunity costs to maintaining the status quo. Second, in the context of India’s balance of payments crisis in 1991, officials in the Ministry of Finance were motivated by their growing awareness of global best practices to use their authority to modernize India’s capital market. Finally,India’s politicians and reformers in the Ministry of Finance had a relatively low ‘political cost-benefit ratio’ for reforming equity markets.
Go read the entire article here
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Saturday, July 7, 2007

Keep Going!

Today I am updating this blog after a long interval. I want to share this inspiring story forwarded to me by a friend.

Arthur Ashe, the legendary Wimbledon player was dying of AIDS which he got due to infected blood he received during a heart surgery in 1983.

From world over, he received letters from his fans, one of which conveyed: "Why does GOD have to select you for such a bad disease"?

To this Arthur Ashe replied: The world over --
5 crore children start playing tennis, 50 lakh learn to play tennis, 5 lakh learn professional tennis, 50,000 come to the circuit, 500 reach the grand slam, 50 reach Wimbledon, 4 to semi final, 2 to the finals.

When I was holding a cup I never asked GOD "Why me?". And today in pain I should not be asking GOD "Why me?"

.... Keep Going ......

And this is another inspiring poem ( Link thro' IndiaUncut)

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