Financial Planning

The market is on a roller coaster ride due to global and domestic uncertainty. The benefit of the corporate tax cut will be seen in Q2 earnings, which means most of the companies paying tax rate from 35% to 39% including other surcharges, will pay only 25.17%. IT companies are less benefited with the move, as most companies operate in special economic zone (SEZ) & already enjoys below 25% tax.

RBI slashed repo rate by 25 basis points to 5.15%, in a fifth consecutive rate cut to boost growth, but at the same time cut the GDP growth forecast of FY20 to 6.1% from 6.9%.

IRCTC IPO was oversubscribed by 112 times, to debut on Monday, October 14.

Indian Benchmark indices ended in positive territory after positive cues from the global market, over good trade talk between US-China on a Thursday. Sensex settled at 38127 & Nifty 11305. On a weekly basis, Sensex gained 0.72 % & Nifty 0.97%.

Friday IIP (Index of industrial production) numbers were declared, which is worst since 2012, leading to negative growth, i.e. -1.1%, which again shows more measures are needed for recovery.

It’s an old saying, any experience which leads to bitter experience, lingers on for a life-time, hence one takes cautious steps towards the similar encounter.

Best explained by Mr. Abhay from Kolhapur, who witnessed the severe flooding recently, leading to many days & weeks for the entire city of Kolhapur without food, clean water, sanitation & above all, emergency money with residents. How did Mr. Abhay survive?

Mr. Abhay, with his early experience, in his childhood, had thought-thru & planned for such natural calamities. He always maintained at home, emergency cash, some extra stock of food & water, basic medical help. Sounds simple & basic. But do we have such contingency planned & executed?

I am not trying to prepare you for natural calamities, but for a far bigger calamity, i.e. savings & contingency. Why is that we wait for some reason (bad or good) to start the same? Buts that’s the usual story for all of us, mainly the millennial.

Contingency means, planning for an emergency, which could be in any format, key being Job loss or Job shift, Health or Medical. They (emergency) don’t come invited but happens. Usually, it is recommended to have 6 months to 12 months of income saved, towards contingency or emergency funds.

“You win some and lose some, I heard that my whole life
I heard that my whole life, but that doesn’t make it right” … song lyrics by Big Sean.

Indian equity market remained under pressure throughout the week, due to weak global cues and heavy sell-off in banking stocks. RBI’s restriction over Punjab and Maharashtra Coop Bank, huge sell-off in Yes bank, IndusInd bank NBFC exposure, led to negative sentiments with investors, with FII’s remained net-seller in the cash market.

Friday – 4^th Oct, we witnessed buying in the morning trade, but indices declined sharply post the rate-cut announcement and cut in the GDP growth forecast, reducing it to 6.1% for FY20, from 6.9%. RBI cut Repo rate by 25 basis points to 5.15%, a fifth consecutive rate-cut to boost growth and decided to continue accommodative stance, to reduce the lending rates, in-turn to spur spend with more funds in hand.

Sensex settled at 37,673 & Nifty at 11,174; both down by 2.2% this week. Except IT sector, all other sectors & indices ended lower. Major selling happened in Banking, FMCG, Financial Services.

Asian market; continuous sell-off seen in Asian market in this week due to concern over U.S china trade war, slowing growth and US new tariff on European aircraft and agricultural products. Outlook over coming week remains rangebound.

Indian Benchmark indices carried out gains of 20^th September throughout the week, on a positive decision of a cut in corporate tax rate by our dear Finance Minister earlier.

Many of us were caught in the middle, what to do next?

Sensex and Nifty remained volatile due to low Global clues like US political issues, issues related to US-China trade disputes, with three sessions ended in a positive bias, out of 5 sessions. Sensex settled at 38822 & Nifty 11512, cheering up everyone’s mood & sentiment.

Asian market was trading at a mix territory, whereas European stock went-up on a hope of easing economic growth concerns.

Outlook over coming week remains Positive, on a domestic front; due to supportive sentiments, and outcome from finance minister meeting with Bank Heads, and on the international front; hope of development in the Global front, FII/FPI’s buying, easing crude prices.

Like a blockbuster movie’s Day1 opening, today’s announcement by our dear FM Nirmala Sitharaman, pulled the market up by 2000+ points, like there is no tomorrow, snapping losses of last few weeks in a historical single day gain (in last Ten years).

Sensex settled at 38014, a gain of 5.32% percent!! Aggressive buying was seen in banks, auto and metal stocks. IT shares lagged the broader rally, as rupee edged higher at 71.12.

Asian stocks also ended higher on Friday, as economic stimulus around the world eased fears of economic deceleration. On the trade front, Chinese and U.S. delegates are meeting Thursday and Friday ahead of higher-level meetings expected early October to resolve the year-long trade dispute.

Stimulus announced by FM Nirmala Sitharaman on Friday are:

• Corporate tax slashed to 22% for domestic companies, subject to condition they will not avail any incentive or exemptions (the effective corporate tax rate after surcharge will stand at 25.17%).
• Manufacturing companies set up after October 1 to get an option to pay 15% tax (17.01% inclusive of surcharge & tax)
• Listed companies that have announced buyback before July 5, 2019, tax on buyback of shares will not be charged
• To provide relief to companies availing of concessions and benefits, a MAT relief by reducing it from 18% to 15%
• Higher surcharge will also not apply on capital gains on sale of security including derivatives held by FPIs

Which is better – EMI or SIP (monthly savings)?

Can I buy IPhone-11 on Sept 27 ^th ?

Last night we ganged up for dinner, to celebrate my dear friend’s birthday. Amid talks on life, markets and bosses, one specific topic that caught everyone’s attention was that our birthday girl gifted herself a Scooty!

She narrated her story on how she was saving for over a year to buy this Scooty, and how her travel will now be so damn easy. Sounds so nice.

As usual, one of us, the Wise-guy interrupted, giving Gyan on using the EMI option, thru which the birthday girl could have got the Scooty much earlier. To this, our birthday girl smiled and replied that she doesn’t like a loan on her head, also the interest on the loan would just add up on the burden. Saving is easy for her, living with a loan (however small), is difficult. Though that’s her perspective, but not many of us bought this logic last night 😉.

It’s the same story across the millennials, where instant gratification is the buzz word. IPhone-11 will be launched on Sept 27^th, and I know many of us are just waiting for the day to grab & show the latest asset around.

It all looks attractive (EMI I mean), but none of us gets down to calculate the devil in it, the interest we end up coughing, to achieve this goal. Let’s understand this thru a very basic example, i.e. Rs.5,000/- paid as EMI for 12 months and Rs.5,000/- saved as SIP for 12 months.

EMI Option: Rs.5000/- EMI per month, for 12 months means that, one can purchase product worth Rs.56,275/- only, as rest of the amount i.e. Rs.3,725/- will be paid as Interest to the bank. Noting comes free.

Savings (SIP) Option: Rs.5000/- saved per month, for 12 months goes to a RD account in bank, @8%, end of year one will have Rs.62,665/-in the account or Rs.6,390/- extra compared to EMI above. On the other hand, if same goes to Mutual Funds, with higher returns, depending on tenure & risk profile, this extra amount could be more.

Idea is not about the last minute purchase, but the discipline to start savings at the first instance, i.e. first salary… which also means, since I started saving from day 1, I can literally buy my IPhone-11 costing 65k on Sept 27^th 😉.