Wednesday, 29 May 2019

FACTORS AFFECTING GOLD PRICES IN INDIA

In the eyes of Indians, gold is one of the safest investment options which they can liquefy anytime they need. It is the investment option they can always look up to during the times of financial crisis. But, that’s not all! Gold has some sentimental value in our culture. It is used in festivals, weddings, birthdays, and many auspicious occasions go without using this commodity. In our culture, gold is used in making gold jewelry which leads to a rally in the price of gold. While gold has been living up to its standard until now. Now, gold does not hold the same value it once before. People are switching to other precious metals and seeking other investment options that are as good as gold investments. The prices are soaring. The demand for gold plays a major role in its soaring price but not the only one. There are other factors that are affecting the gold prices in India.
Here, in this article, we’re going to mention the important factors that are affecting the gold prices in India.

JEWELRY MARKET

Jewelry the market plays a major role in affecting the gold prices. Like we said earlier, gold jewelry uses in making gold ornaments.  During festive or wedding season, the gold prices go up as in increased consumer demand. The mismatch of demand-supply could lead to raised prices. And not just that gold also demands in the manufacturing of devices like television, computer, and GPS, etc. As a result, the demand for gold rises and the country often ends up importing especially in wedding season.

INFLATION

Inflation is another important factor that influences the gold prices very much. During the inflation period, the domestic currency weakens, and when that happens, the people start investing in gold, which automatically raises its demands.
It is also the reason why gold considered one of the safest investment options. Inflation reduces the purchasing power of people so when one is careful in spending, one becomes extremely careful in investing. Therefore, during the inflation period, the demand for gold increases, results, affecting its price.

MOVEMENT IN GLOBAL PRICES

As we mentioned earlier, India is the largest importer of gold so any movement in the global gold prices affects the price of gold at home. Any change in global supply or change in demand could lead to change in the gold prices. And since the import gold price is linked to international gold prices, any change in the international market could affect the domestic gold prices.

CENTRAL BANK GOLD RESERVES

The Central banks of the respective nations hold both currency and gold reserves. For example, the US Federal Reserve of the United States and Reserve Bank of India holds a significant amount of gold reserves which they must sell off when the economy is booming. And when they hold on the gold, the price goes up. It is because the cash in the market increased and the supply of gold goes down.

INTEREST RATES

Gold and interest rates are inversely proportional to each other. When the interest rate rises, people often sell their gold in order to use the money to earn high interest-rates however when the interest rate decreases, it becomes suitable for them to buy gold and this increasing in demand. When that demands increase, the prices automatically increase. But, don’t forget it is a short-term relation between gold and interest rates. In the long-term, both have shown a positive correlation.
So, we can say that the prices of gold go up and down and there are a lot of reasons that can make it do so.

Wednesday, 15 May 2019

Did you know that PF withdrawals before five years of service are taxed?

The Provident Fund (PF) is a highly preferred retirement saving scheme among employees. Under this scheme, both employee and employer contribute a fixed portion of pay (12 percent each). Every year, interest at a notified rate is credited to the cumulative balance of the Fund and at the time of retirement or pre-retirement withdrawal, total contributions made by the employee and employer are paid along with the accumulated interest.
The PF scheme enjoys an EEE status i.e. the contribution, accretions and the withdrawal on retirement are exempt from taxation, subject to certain conditions. The contribution made by an employee also qualifies for a deduction u/s 80C of the Income-tax Act, 1961 (Act), within the overall ceiling limit of Rs 1.5 lakh.
Before retirement, an employee is permitted to withdraw the PF amount for specified purposes such as marriage, education, purchasing a house or medical treatment, etc. Withdrawal of accumulated PF balance is also allowed in case an employee remains unemployed for a continuous period of 2 months, on retirement or on death/ incapacitation of the employee.
At the time of withdrawal, the accumulated balance of PF may be taxable or exempt from tax depending upon the total number of years for which the employee was in continuous service.
Withdrawal made before five years of continuous service will attract taxation. On withdrawal, the employee will get accumulated balance comprising of employee contribution, employer contribution, interest on employee contribution and interest on employer contribution; taxability of each of these components will occur in the year of withdrawal and varies from each other.
For the employee contribution, deduction u/s 80c claimed in earlier years will be disallowed and employees will have to pay tax at the same rate at which tax would have been paid in those years. The employer contribution, interest on the employee contribution and interest on employer contribution will be taxed as income of the year in which the withdrawal is made.
As the entire withdrawal amount is taxable, each component of the withdrawn amount - the employer contribution, employee contribution, and respective interest on these contributions - needs to be reported separately. The employer contribution and the interest earned on the employer contribution need to be categorised as “Salary Income”. The reversal of deduction u/s 80C of the Act of employee contribution and interest earned on the employee contribution will be categorised as “Income from Other Sources”.
Withdrawal made after years of continuous service is exempt from tax. While interest up to cessation of service is exempt, the interest earned on the accumulated balance post cessation of service (i.e. the period between the date of termination/ retirement of service and the date of actual payment/settlement of fund) will be taxed in the hands of the employee.
Though the amount so withdrawn will not be taxable, however, it would need to be reported as ‘Exempt’ income in the “Exempt Income Schedule” of the income-tax return. The interest earned on the accumulated balance post cessation of service is taxable and has to be reported as “Income from Other Sources” in the income-tax return.
With increased governance and scrutiny by the revenue authority for correct taxability and disclosure in the income-tax return, the taxability and reporting of withdrawal of PF are a crucial part of the income-tax compliance by an individual. It is pertinent to report the income carefully in the income-tax return so as to avoid any unforeseen impact at a later date.

Wednesday, 1 May 2019

How Acquisition Affect Stock Prices Of Both Companies?

You must’ve seen an acquisition in Indian and global market plenty times when a company takes control over another company and the later one ceases to exist. When that happens, the stocks continue to trade for the acquiring company but not of the acquired company. However, the merger happens between two companies of the equivalent size which come together to form a single company. So, when it is about the acquisition, you should be alert towards this action that is taking place in the market very often.
Such corporate processes raise some negative implications in the minds of people. So, if you’re investing or trading in the stock market then you should be very cautious towards acquisition because there will always be M&A impact on share prices of both companies in the short term.

How does acquisition affect the stock prices of both companies?

Well, one thing is clear – When a company decides to acquire another company then the stock price of one will rise and another’s fall. Now the question is which company’s stock price rise and which ones fall?
Generally, in the acquisition, the share price of acquiring company fall down and the share price of the acquired company will rise. It is because when the acquiring company plans for acquisition, it has to pay a somewhat extra premium than the worth of the target company. Otherwise, the promoters of the target company will not come out forward for acquisition. And this also the reason why the share price of acquiring company falls down to pay little extra to the bought up company which sometimes, reduce the net worth of buying the company in short-term.
Many companies acquire other companies in order to expand itself and come together with other small companies to eliminate competition and growth. But, sometimes, those plans backfire – especially when the acquired company has debt and business deal fail to dematerialize among others. If that happens, the share price of the bought up company with fall down remarkably.
It is also possible for rising in the share price of bought up a company to rise above the deal price in the hope that the target firm has some reputation and brand value and some other firm will come forward to take over the firm.
So, it is important to consider both the short-term and long-term impact of the acquisition on the stock prices of both companies. Nevertheless, if the acquisition goes smoothly, the acquiring company can see a rise in share price in the long run. Partially, it also depends upon the management of acquiring a company to the value the target company during the acquisition process.

Monday, 29 April 2019

Why Do Companies Issue Bonds?

You must’ve have seen many corporate companies and organizations issuing stocks for raising funds. It is the best way to raise money for the organization. But, it is not the only way to do it! There are other ways to raise funds for the company but not all as effective as issuing stocks except bonds. Sometimes when a company is in need of funds, issuing bonds is one way to do it.
In issuing a bond, the bond works as a loan between investor and company. An investor agrees to give the company a specific amount of money for a specific period of time in return for periodic interest payments at regular intervals.
When the loan reaches the maturity period, the investor’s loan amount is repaid to the investor.
But, the question still stands, why do companies issue bonds?
What’s the reason behind corporations issuing bonds instead of stocks?
Well, there are several factors that drive the decision of issuing bonds instead of other methods for raising funds. To get clear insights, we’re going to compare the features and benefits of bonds with other common methods of raising money and why do companies need to bonds issuance when they are in need of raise cash to fund corporate activities.

Shouldn’t Companies Approach Bank?

Well, you are right to think that way. If a company is in need of raising money then it can simply approach the bank to take the loan.
Why would a company issue a bond instead of borrowing from the bank?
A company can take a loan from the bank just like a normal person but issuing bonds would be a more attractive approach to do this. Besides, the interest rate at which a company pays to obtain a bank loan would be higher than the interest rate company pays bond investors is often less.
The company can use its profits to pay out investors. This is why many companies consider issue bonds when the interest rates are low. Not only has it given the advantage to companies to take loans on extremely low levels but also the ability to grow.
Another benefit of issue bonds is the level of freedom. When a company goes for using bonds, it releases it from the restrictions attached to bank loans. For instance, there are a lot of restrictions for a lender when on bank loan such as the lender often required companies to agree to certain conditions. One like, when the lender cannot issuing more debt and not making organization acquisition until the loan amount is not paid in full.
Thus, many companies choose debt over interest rates. On a personal level, it may not cause much of problem but as a company, it can hamper its workflow.

If that’s the Case Why Shouldn’t Companies go for Stock Issuance?

Now that you’ve got some idea of issuing bonds – can you tell why some companies issue bonds, not stocks?
Well, as you know that when a company issue stock, it grants proportional ownership in the company for investors in exchange of money. The benefit company gets from issuing stocks is they do not need to be repaid. But, it comes at the cost of ownership. In stock issuance, the future earnings must be shared with all the investors of the company. Sometimes, it can result in a decrease in earnings per share (EPS), which put less money in the owner’s pocket.
When an investor sees decrement in EPS, the value of the company in investors’ eyes become less valuable and not seen as a favorable development. Issuing more shares also means you will be giving away your ownership to a large no. of investors which often makes share value worthless.
But, with bonds issuance, companies can raise money for funding operations and business activities without granting ownership of the company to the investors. Furthermore, the company can issue more bonds in the future to raise funds.

Final Thoughts: –

Overall, we can say that bond issuance is one efficient way to raise money for the company. In fact, it attracts a large no. of lenders in an efficient manner. Not only the company can keep ownership intact, but it can also get more lenders with time to raise the money without worrying over the EPS and ownership.

What oil at $100 a barrel would mean for the world economy

Surging crude prices are posing another headwind for the world economy after President Donald Trump’s zero pledge on Iran oil sales.
Brent crude has risen about 33 per cent this year and is close to the highest in six months. While higher prices due to strong demand typically reflects a robust world economy, a shock from constrained supply is a negative.
Much will depend on how sustained the spike proves to be. Exporting nations will enjoy a boost to corporate and government revenues, while consuming nations will bear the cost at the pump, potentially fanning inflation and hurting demand. Ultimately, there comes a point where higher prices may be damaging to everyone.
What does it mean for global growth?
The impact will vary. Rising oil prices will hurt household income and spending and it could accelerate inflation. As the world’s biggest importer of oil, China is vulnerable, and many countries in Europe also rely on imported energy. Seasonal effects will also impact. With the Northern Hemisphere summer approaching, consumers can switch energy sources and scale back usage. A slowing world economy will also hurt demand and by extension keep a lid on prices.
How can the world economy absorb oil at $100?
For a sustained hit to growth, economists say oil would need to hold above $100. It also depends on dollar strength or weakness, given crude is priced in greenbacks. Analysis by Oxford Economics found that Brent at $100 per barrel by the end of 2019 means the level of global gross domestic product would be 0.6 per cent lower than currently projected by end-2020, with inflation on average 0.7 percentage points higher.
How will Iran and Trump impact the market?
An upending of global oil trade around the Iran-Trump spat could continue to have a sizeable impact on financial markets, as the affected supply is as much as 800,000 barrels a day. Uncertainties around availability have already whipsawed oil markets. And the political sensitivities of these developments have other markets bracing for volatility.
Trump has pledged to help, alongside Saudi Arabia and the UAE., those needing to shift orders from Iran to another supplier. But US claims that its domestic supply can help offset the loss are a high bar to meet, given that the daily American output for similar crude is about a quarter of Iran’s.
Who wins from higher oil prices?
Emerging economies dominate the list of oil-producing nations which is why they’re affected more than developed ones. The increase in revenues will help to repair budgets and current account deficits, allowing governments to increase spending that will spur investment. Winners include Saudi Arabia, Russia, Norway, Nigeria and Ecuador according to analysis by Nomura.
Who loses?
Those emerging economies nursing current account and fiscal deficits run the risk of large capital outflows and weaker currencies, which, in turn, would spark inflation. That, in turn, will force governments and central banks to weigh up their options: hike interest rates even as growth slows or ride it out and risk capital flight. Nomura’s losers list includes Turkey, Ukraine and India.
What does it means for the US?
While US oil producers try to take advantage of any sales boost from customers moving away from Iran, the broader US economy won’t necessarily see benefits with oil price tags as high as $100 a barrel. It would be a squeeze on American consumers that are the backbone of still-steady economic growth. Prices at the gas pump already have risen more than 7 per cent this month to $2.89 a gallon, which could weigh on retail sales that jumped in March by the most since 2017.

Sunday, 21 April 2019

Mutual Fund Trends March 2019

The value of assets held by individual investors in mutual funds increased from Rs.11.66 lakh cr in March 2018 to Rs.13.54 lakh cr in March 2019, an absolute increase of 16.08%.


(1) In March 2019, 23% of assets held by individual investors is from the B30 locations. 6% of institutional assets come from B30 locations. Institutional assets are concentrated in T30 locations, accounting for 94% of the total.

(2) The proportion of direct investments in equity, to the total assets held by individual investors, was about 8% in March 2019.Only 12% of the Individual Investor money in Equity Mutual Fund comes through the direct route out of that 10% comes through the direct route in T30 cities.

(3) Interesting to see – Manipur, Nagaland, Arunachal Pradesh, Andaman and Nicobar, Tripura, Sikkim, Mizoram and other smaller states slowly getting penetrated but are still miniscule ranging from 300-1200 crores.

(4) Indian Mutual Funds have currently about 2.62 crore (26.2 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes.
AMFI data shows that the MF industry had added about 9.13 lacs SIP accounts each month on an average during the FY 2018-19, with an average SIP size of about ₹3,070 per SIP account.

Wednesday, 10 April 2019

How To Monitor Your Mid-Cap Stock Investments?

Back in 1990, Eicher Motors was a largely unknown manufacturer of motorcycles and commercial vehicles Company. If somebody had invested just Rs. 10,000 in Eicher Motors in 1990, today it would worth more than Rs. 2 crores. Same goes for Infosys which could’ve returned nearly Rs. 3 crore if you invested Rs. 10,000 in 1993. Who would’ve thought that such mid-cap companies would turn out to be large-cap companies? – Well, don’t sweat about it because it is very hard to foresee such a thing back then.
But, not all mid-cap companies turned out to be large-cap companies. In fact, if you’ve stayed invested in the mid-cap or small-cap stocks through 2018, you would’ve realized that Nifty was up by 4 percent however the mid-cap was down by 16 percent and small-cap was down by 26 percent.
When you narrow your research, you will realize that there are some mid-cap stocks that plunged even by 50 percent. So, things can go either way! Besides, market volatility is highly unpredictable. Only a few have the talent to predict the future direction of the stock market. But, even there are times when they are wrong too.
The real question is, “How to reconcile this contrariety between the returns potential and risk associated with mid-cap stocks?”

How to Monitor Mid-Cap Stocks?

  • Check the Past Performances: Past performances may not guarantee future growth but is recognized as the first step in investing world. You need to be aware of what you’re getting yourself into. It is your best bet against the uncertainty surrounding the mid-cap stocks. A consistent track record will tell you that the company has been performing well in the last 4-5 years and the same can be expected in the future. But, if the company hasn’t performed well in the past then what makes you think it would do any better in the future.
  • Check for Vulnerability: Usually, the mid-cap stocks are vulnerable to the interest rate movements and trend shifting in global demands. So, it would be recommending checking for such risk factors and key economic indicators that may or may not affect the mid-cap stocks that you’re invested in.
  • Stop Comparing with Others: A very common habit of us investors is to compare one with another. There is no point of comparing mid-cap stocks with large-cap or blue-chip stocks, or with the Nifty or Sensex, etc. There is a reason you are invested in mid-cap stocks, not in large-cap, small-cap or blue-chip stocks.
  • Liquidity Matters: When you’re in mid-cap stocks it is important to consider liquidity. It would be good if you can easily exit the stock that you’re invested in, without too much price damage. Unfortunately, the mid-cap stocks are not that much liquid and are quite vulnerable to quick selling and damage the value of your stock quite fast.
  • Allocation: It is important to allocation your portfolio time-to-time. When you’re targeting are met keep shifting to large-cap stocks so that profits are monetized and booked at regular intervals. Thus, asset allocation is very important if you’re holding mid-cap stocks in your equity-based portfolio.

Final Thoughts: –

When it comes to mid-cap stock investments it is important to monitor risks than managing returns. If you manage the risks the returns will automatically follow-up. And always remember the real testament of mid-cap stocks is in a down market. The ability of a company to manage risks even in the down market is very critical.