Wednesday, October 31, 2007

India Vs Pakistan

Should it really be India Vs Pakistan? Or should it be India and Pakistan. Have you ever wondered about the similarities we share in culture, habits and food .Then why this bitterness!
We are victims of the same issues - terrorism, poverty, corruption. Both the countries got independence at the same time from the British rule. Lots of the issues plaguing these countries are a result of British rule for centuries. In the era of globalization and for the sake of prosperity, eradication of poverty it is important that we forget our differences and work together towards addressing the common issues in society. Taking example from some of the more developed countries we must learn that capitalism is the only way to address issues central to poverty. Vast number of resources exist in India and Pakistan, but for so many years they did not trade with each other and preferred to borrow resources at far greater costs from other countries; In the bargain they have stifled growth and so many of its people are locked into the vicious cycle of poverty. Poverty feeds into terrorism and extremism. We must learn together to address the root cause of terrorism. Terrorism in my opinion is the worst case backlash as a result of poverty.

India and Pakistan will lead to

  • Trade and Prosperity for people on both sides of the border
  • Newer Market opportunities for companies in India and Pakistan
  • Less defense spending and no arms race
  • Spending in education, poverty alleviation programs and fighting terrorism.
  • Prosperity in a society would lead to lower corruption

India Vs Pakistan will lead to

  • We would spend a large percentage of tax payers money to buy arms and build nuclear arsenal.
  • Our politicians would continue to provide us misinformation/
  • Increase in terrorism
The choice is ours , lets make the right choice for the benefit of the coming generation and move towards the path of prosperity

Useful Links

Wednesday, October 24, 2007

A Case for Profit Booking

We are all aware of the huge stock market run up globally from 2003 . All major stock indices are almost at an all time high. The Indian stock market briefly touched 19000 points this month. Everyone you meet and know is talking about the stock market boom and is chasing stocks. In my experience in a scenario like this an individual must book profits at least partly or fully. There is no better thing as cash and there is a big difference between $s that grow on paper and good old cash.

  1. The sub prime crisis has begun to affect the US economy and is threatening to slow down spending. Even today the 300 million US households are a big factor in driving growth. Today these consumers are seeing their house values fall and many of them are just being exposed to the resetting of the ARMs translating to hire mortgage payments. It is expected that discretionary spending capacity of these customers is expected to decrease in the near term.
  2. Profit warnings from major retailers like Walmart and Amazon are suggesting that they are anticipating a slowdown in sales. The retailers generally know their customers and these warnings must be taken into consideration.
  3. Technology stocks have been moving away from the broader market suggesting a bubble. Remember earnings today reflect past performance and may not be indicative of future growth.
  4. The weakening of the dollar suggesting that the Federal Reserve is moving away from a strong US dollar policy and is making efforts to drive growth in the manufacturing industry.
  5. Stronger Asian currencies will hamper their export growth to the US. It is no secret now that low cost Chinese goods have helped keep the inflation rate low. As the yuan is pegged to the dollar the yuan is depreciating along with the dollar. There is increased pressure on the Chinese Government to freely float its currency. If that happens this may result in higher inflation in the US forcing the Feds to increase interest rates. A further increase of interest rates is going to further aggravate the sub prime crisis.
  6. A stronger rupee ion India is hurting the earnings of tech companies like Infosys, Wipro and TCS. These companies have been one of the biggest drivers of growth of the Indian economy and have contributed to the growth of the middle class.
  7. Wage growth in the US has been low but prices of homes have increased drastically.
  8. Of course the War in Iraq , tensions with Iran , Instability in Pakistan all are posing grave threats to the global economy.

Citing all the reasons above, if you have made some good returns over the last couple of years, it may be time to book some profits.

Monday, October 22, 2007

Investing in Indian Mutual Funds for NRIs

NRI's(No Resident Indians) are enamored by all the business media reports about the economic boom in India. They wonder how to invest in India but there are no step by step details on the procedures to invest in Indian Mutual funds. This is an attempt to help NRIs invest in Indian mutual funds।

  1. Do you have a PAN Number ? PAN number is the Indian Governments attempt to have an individual identification number for each Indian much like the Social Security Number in the US. The PAN Number is the "PERMANENT ACCOUNT NUMBER". As of July 2007, it is mandatory for all Indians (residents and NRIs) to, at least, apply for the a PAN number before making an investment in Mutual Funds and Stocks. Further details are available at
  2. Tax Advantages: An investor investing in India must keep in mind the potential risks of investing in India. Remember Harshad Mehta? Ketan Parikh ? and, of course, the dot come bust in the year 2000. However, if you believe in the India Growth story or for that matter, any of the BRIC nations, one as an NRI, must invest in India because of the tax benefits. It is true that a number of ETFs and Funds can be purchased in the US to enable one to gain exposure to the Indian market but as an Indian you have special privileges that you may not be aware of. Indians can invest in the Indian Stock market directly or via Mutual funds and are not subject to long term capital gains tax. The Short Term Tax Rate is as low as 10%.
  3. Double Advantage- As Indian stocks appreciate in value a rupee transferred a couple of years ago has itself appreciated by almost 10%. So stock market returns are compounded by the weakening of the dollar.
  4. NRE Account / NRO Account: These are Non Resident Accounts that can be opened by an Indian, when the Indian has been away from India for a stipulated time. An NRE account, is an account where the money resides in rupees but the source of funds has to be external remittances only . This account allows complete repatriate of the investment proceeds provided the source of funds are from abroad. Investments can also be made from NRO accounts but NRO Accounts should be used for money that one does not intend to reparitate. Higher interest rates are offerred on NRO accounts. These accounts can be opened up with ICICI bank, HDFC Bank ,Citibank etc.
  5. Sign up for Money Transfer Service. A number of money transfer services are available online that link your checking account in the US to your NRE/NRO accounts in India. Once all set up it is as convenient as clicking a button to transfer the funds to India.
  6. Knowing your risk profile - There are plenty of options available to invest within mutual funds. Each individual must assess his /her own risk profile. At a high level there are equity funds, balanced funds and debt funds. Some companies now offer a number of variations like a "Dynamic" fund that gives the fund manager the flexibility to invest in Debt or Equity with no minimum holding requirements .A number of companies allow total Internet access to its investors like, and
  7. Researching the funds - Funds can be researched at In my experience, the website provides comprehensive fund detail and analysis to help make a decision.
  8. Actually Investing. To my knowledge, the best way to do this is to download a pdf form from the mutual fund website , fill it up , provide the NRE/NRO bank account details and mail a cheque in to the various mutual fund service centers. Providing an email will help that you receive account statements by email.

Happy Investing !

A Weak Dollar - Investing tips for NRIs keen for R2I

Its no secret that the dollar has been steadily depreciating against its peers since the last few years. What is interesting though is that the US Government and Feds though publicly announcing their support for a "strong dollar" don't seem to be perturbed by this. In my opinion the Fed Interest cut announced recently of a half point cut signifies the decision of the Feds to allow the dollar to depreciate. A strong cut in interest rates in their opinion will prevent a hard landing of the housing bubble and at the same time will help reverse the trade deficit issue with China and other asian companies. A weaker dollar will weaken IT companies with an offshore model as it will become expensive for these companies to provide cheap services to US companies. Hence it will help prevent off shoring of jobs. It will also increase manufacturing in the US and will make US exports competitive to the rest of the world.

Why is the RBI not intervening in the forex market in a big way?

India is a consumption economy and a bulk of their GDP growth is driven by internal consumption unlike China which is a export driven economy. Oil represents a big purchase for the Indians as it is essential to fuel its growing economy. With Oil prices at almost $90/barrel it makes sense for the Indians to maintain the rupee at current levels to purchase oil. It also helps Indian companies to make acquisitions of US companies

So what should Indians who want to R2I in the foreseeable future do ?

  1. Have half your assets in the Indian rupee. Transfer money to India regularly and consistently such that half of your assets are denominated in US dollars and half of the assets in Indian rupees.
  2. Invest in international mutual funds in the US that do not hedge the currency risk. Most of the US International mutual funds hedge the currency risk . I believe fidelity funds do not hedge currency risk and some of their international funds have dual advantages of stock appreciation and weakening of dollar. The FDIVX fund is a good example.
  3. Buy Gold as a hedge . Gold bullion has an inverse relationship with the dollar. Gold in the form or bars or coins can be sold at all major exchanges around the world. GLD is an ETF traded on the US exchanges and can be bought at any commercial stock broker.
  4. Invest in Indian mutual funds as currently there are no long term capital gains for NRIs and resident Indians.