Nov 13, 2016

Positive Negative Effect of Currency Rupee Ban Of 500, 1000 Rupee Notes India

Positive Negative Effect of Currency Rupee Ban Of 500, 1000 Rupee Notes India

·         Money supply will get reduced for the short to medium term which will have impact in terms of lower growth rate of money supply.
·         Approximately 15 lakh crore Rupees 500 and 1000 rupee notes are in circulation and almost half of them are expected to be unaccounted or black money which is expected to be vanished from the system. The real figures will be known only in next 6 months. The government has collected in excess of 2 lakh crore so far in 4 days since currency ban.
·         Currency ban’s Long term impact sector specific than economy specific.
·         This is only transitory shock but no medium or long term negative impact.

·         Very good move for the medium to long term for the entire economy.
·         Businesses in the micro finance sector like bharat finance, ujjivan finance will be affected badly for the short to medium term. They will revive only when the new currency notes come back to circulation in full fledged manner.
·         Real estate sector and jewellery sector are two sectors which will be hit hard. These sectors were booming due to black money and most black money were parked and circulated as well as stored in investment in or through these two sectors. However the long term impact cant be assesses right now in practical terms. In theory all sectors are going to benefit from this move as more and more money comes into main accounted stream and hoarding of money gets reduced in terms of cash stashes and unproductive uses like jewellery and real estate and other such sources.
·         Companies which are in sectors like automobiles batteries which are dominated by unorganized sector will gain on the back of business becoming sluggish in unorganized segment.

·         Number of people filing income tax return will increase and in turn tax collection will increase. Which in turn increase the revenue of government and it can spend more for the growth of the economy and welfare schemes and also reduce its fiscal and budgetary deficit and balance of payment situation can also be helped.
·         It will take time for the stock markets to digest this event and its consequences fully before it starts reacting. But over the mid to long term this event will help the market rise as the stock market has been long fortified from the circuits of unaccounted money and it will have close to zero impact save and except sector specific and stock specific impact on real estate and jewellery etc.
·         The most important take away is that one doesn’t need to think that the cash economy will die. The government is going to issue new notes in place of the old notes in different small and big denominations. Yes, a big chunk of cash will become useless, thus slackening the cash economy to that extent.
·         This move will bring 100 fold rise in online or digital transaction in various segment of the economy, and thus will increase businesses for those segments and companies giving services to such companies.
·         All corporate businesses will benefit who are facing competition from unorganized business in their sector.
·         Use of black money in elections will be reduced, especially in upcoming elections in Uttar Pradesh and other 3 states.


Impact of demonetization
Pros and cons (short term and long term)
What is the effect of Currency Ban/500, 1000 Rupee Note Ban On Economy/Stock Market
1. Immediate impact: is expected to be negative all round:
a. In the short term it will be a logistical nightmare to manage the cash replacement in banks and smooth functioning of the banking system
b. slowdown in consumer spending due to limited cash availability
c. severe liquidity issues in cash based sectors like Real Estate and Jewellery
 d. GDP will decline in the next 2 quarters due to reduction in overall spending

2. Over the next 4-5 months:Those having legitimate income will deposit it in banks and apart from the initial hassles associated with the banking system, they will have nothing to worry about. 
However those having unaccounted money will face several problems as follows:
a. Those who choose to do nothing with the money, their notes will expire worthless. Every note is a liability of the Government (RBI), and thus notes becoming worthless will benefit the Government by extinguishing its liability.
b. Those who declare their unaccounted money, approx 60- 70% of the money will go to the Govt in the form of taxes and penalties.
c. There will be a third category who will try to launder their money, but which will entail severe risks including penalties and prosecution. However, the money sought to be laundered will anyway enter into circulation and remain therein.
It is expected that even if 50% of the around 14 lakh crores of old notes are legitimate, the remaining 50% or around Rs 7 lakh crores of unaccounted money will see around 60 to 80 % thereof or approx Rs 5 lakh crores coming to the government in the form of extinguished RBI liability (point a above) and taxes and penalties. This Rs 5 lakh crores is enough to take care of India's entire fiscal deficit for one year or more.

3. Overall Economic Impact:
a. GDP growth is expected to be negative for around 6 months. However subsequent 2 years will see sharp "hockey stick" revival in growth.
b. Inflation is expected to fall sharply with fall in Real Estate prices and transaction costs thereof.
c. Government Deficit will see a huge windfall in the next 2 years.
 d. Currency is expected to strengthen as inflation drops and economy gets a boost.
e. Banking System will get a boost, as around Rs 7-8 lakh crores base money (new legal money) will enter the system, which will further create around 3-4 times more money due to re-circulation.
f. Real Estate and Jewellery sectors, though battered initially will stabilize in the next 6 months.

4. Effect on various Asset classes:
a. Bond prices will rise as interest rates drop.
b. Real Estate is expected to fall by around 20 -25 % and stabilize thereafter.
c. Effect on Gold is a bit uncertain, and may be neutral/ negative. Lower black money will depress demand, but at the same time Gold is a hedge against uncertainty and those still wanting to park black money may prefer to put it into Gold instead of cash.
d. Equity is expected to benefit the most due to three reasons. One, there will be a gradual shift from physical assets (real estate/ Gold) to financial assets. Two, the organised sector (corporates, expecially listed ones) will benefit due to less cash transactions. Lastly, lower inflation and interest rates will benefit listed corporates through lower borrowing costs, thereby increasing their profitability and valuations.

Thus Asset Allocation and re balancing thereof will now play an even more important role, making proper financial planning imperative.

Lastly, the question may arise as to whether the new Rs 2000 Rupee notes will create more black money or not. While that is always a possibility, it should be noted that this demonetization would have created a psychological impact especially on large scale evaders who will definitely think twice before taking such action.

Nov 5, 2016

What is your style? Know this for 100% success in stock trading

What is your style? Know this for 100% success in stock trading

The importance of a personal style of trading in success in stock markets/Finding best interaction model between you and markets/Most important thing you’ll ever need to know to succeed in trading

This is perhaps one of the top 3 most important aspects of trading and becoming consistently successful at it.
Here we are not talking about the different ‘methods’ of trading such as intraday, swing trading, and so on. I prefer to call them as ‘methods’. But yes, they too, do inculcate in the broad topic of ‘your style’ which we are going to discuss in this topic.
What is your style? What is your style of trading? Yes, Do you know your style of trading? If the answer is a definite ‘no’ or even a vague ‘no’ or ‘I don’t know’, then you need to very very seriously start contemplating on this subject if you want to ever succeed in trading.

One thing we all know and agree is that we all are different, we all look different and we all think different. Similarly, the stock (or any trading market for that matter like commodities, forex and so on) market also has a personality. A personality of many. Don’t get confused yet. The stock market is not a biological entity or any paranormal entity of ‘one’. The stock market is a consensus of numerous entities. It consists of millions of entities, so millions of personalities. The stock market is in constant motion because of the actions of these millions of entities. Actually we got a bit off the topic.

Understand this. The stock market is not a profession. Stock trading can be a profession. But it is unlike a dentist or a doctor where there is more or less standardization of processes. You want a dental implant or a root canal; same process will be used by a dentist whether in India or in Australia or almost anywhere in the world. While not all traders who earn earn by following similar processes. This is what I call personality or style. The dentist doesn’t have the luxury or liberty of ‘his style’ but the trader has not just ‘luxury ‘or ‘liberty’ but in fact ‘necessity’ regarding ‘his style’. He has to have a style of his own.

You cannot just copy and succeed in this business. This of course, I am saying presuming you are trading on your own. But if you are following advisory of an expert or someone else then in that case you simply gotta follow only.

So what is a style?
A style includes almost everything. It includes what markets you trade, what kind of time your devote, what is your approach of profit booking, your concern about safety and risk management, your position size, when do you trade more or less or remain on the sidelines, your comfort level with the various market moves and your reaction to them, are you a short seller or long only trader or both and so on.   
The gist is that a trading style is about ‘who you are’ and ‘how you mingle with the markets’. It is about your comfort level of working with the markets. It is about remaining within the ability of your expertise and continue to trade in the market without taking unknown, excessive and unwarranted risk. Your style is all about identifying and taking benefit of ‘that move’ which correlates to your particular style. You style will decide what kind of technical or non technical indicators your use or whether you use them at all. Your style decides your level of activity. Your style is what defines you against the market, against the all other millions of traders. Everyone has a style. If you don’t think you don’t have one or don’t know, then try to know or observe your style. If you still think you don’t have one, then develop one based on some of the point given above and your personal preferences, your risk taking ability, you area of expertise, what works for you and what doesn’t work for you.
I have used word ‘comfort level’ more than once in this chapter. Many people say to succeed we need to get out of our comfort level, but in stock market it is inverse. To succeed, remain within your comfort zone. The generic phrase’ get out of your comfort level’ doesn’t apply here, anyways it’s supposed to mean differently than what we want to mean it in the context of the topic of this article. Know this. The more you remain in your comfort zone, the better your chances of survival in markets, the more you survive in the markets, the more the chances of you making money doing it.
Now you get the idea that trading style is a subject of finding your behavior and the best course of interaction of your whole self as in ‘who you are’ with the markets. This, you can also call it a harmony.
Trading style or trading personality is about finding your best tuning with the markets, its not about finding best technical indicator or best ‘trading method’ (such as swing trading or something else). its goal is to stop trying hard to deal with the markets and getting into the flow effortlessly. This will set you in the path of making money consistenly. This is how all successful traders ever became consistently successful.

We will write more later on this subject sub topics such as how to know you are not following a style, how to learn or evolve your style, how to know you are not comfortable with your style (as a matter of fact, if you are not comfortable, then its not at all your style) how to get out of a wrong style and so on.
Meanwhile if you are not a fulltime trader or want an expert advisor while you become good at trading, you can check out our website www.meghainvestments.com for various professional advisory services for traders.

Thanks.

Nov 4, 2016

India October 2016 Service Sector PMI near 43 Month High

A solid upturn in incoming new business helped push up growth in India’s manufacturing activity in October, the widely tracked Nikkei India Services Purchasing Managers’ Index (PMI) showed. 

After falling to 52 in September due to drop in new orders, PMI bounced back in October to 54.5 near — close to the 43-month high of 54.7 seen in August. The 50-point mark separates expansion from contraction. 

The order books also rose at a quicker pace, with growth climbing to a 22-month high. However, employment levels remained unchanged, a trend that has now continued for months in both the manufacturing and services. 

However, with October being part of the festive season, it remains to be seen whether this pace of growth will sustain.
The crucial Index of Industrial Production figures are to come before the gross domestic product (GDP) figures for the second quarter of FY17 are released on November 30. India’s GDP grew 7.1 per cent in the first quarter of the current financial year, which was a six-quarter low growth rate. 

Orders placed with Indian service providers led companies to scale up activity in October. The upturn was supported by greater client requests and improved demand conditions. 

Services PMI gathers pace on new orders Survey data indicated that this placed pressure on firms’ capacity; as backlogs of work rose further, unfinished business volumes rose for the fifth consecutive month. Little changed since September, the overall rate of backlog accumulation was solid. A similar trend was seen among manufacturers, where  outstanding business showed a marked increase. 

“One underlying concern is the sustained stagnant trend in workforces, with both manufacturers and service providers showing some reluctance to hire. Hopefully, the added pressure on capacity shown in the PMI surveys will translate into job creation as we move towards the end of 2016,” said Pollyanna De Lima, economist at IHS Markit and author of the report. 

With service providers paying higher prices for petrol, input costs increased again, although at a marginal rate that was softer than in September. However, the survey pointed out that October saw cost inflation ease to a marginal pace that was much lower than the long-run series average. “In fact, less than two per cent of monitored firms reported rising cost burdens,” it said.

Within manufacturing, purchase price inflation reached a 26-month peak. Softer inflationary pressures assisted service providers with their pricing strategies. Amid reports of efforts to attract new customers, selling prices were left unchanged by 98 per cent of firms. Overall, a fractional reduction was recorded as the respective index recorded just below the no-change mark of 50.

Output prices, however, remained broadly unchanged. 

While remaining upbeat towards the 12-month outlook for activity, the overall level of sentiment for companies struck a four-month low. Those firms anticipating growth indicated that improved market conditions and aggressive marketing campaigns were expected to boost activity. Nevertheless, worries regarding fierce competition for new work restricted confidence. 

Released earlier this week, the manufacturing PMI data also showed the same spurt in growth with manufacturing activity touching a 22-month high in October. After falling to 52.1 in September, PMI rose to 54.4 in October. 

As a result, the seasonally adjusted Nikkei India Composite PMI Output Index rose from 52.4 in September to 55.4 in October. This pointed to a marked pace of expansion in private sector activity, which was the quickest in nearly four years. The index had seen a 42-month high of 54.6 in August, but the latest above-50 reading was the 16th in as many months, highlighting ongoing growth.

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