Category Archives: Finance

SGD INR: Post the Election Euphoria

Time flies and it’s already June – I can’t believe that the last I wrote about INR was in February and whole world was speculating on the outcome of the Indian elections. I did not expect the BJP to win with a full majority given the polarisation of votes, combined with regional politics and was expecting a hung parliament. 

Based on that I had predicted that the Rupee would fall back to the 63 mark against the USD and 50 against the SGD (SGD INR: A storm in making). However, to my delight, the BJP did get a full majority. This meant that the uncertainty of a hung parliament and issues cropping up from coalition government were instantly non issues.

The markets reacted favorably to a government formed by progressive and reform oriented leaders and pushed the Indian Sensex to all time highs of over 25,000 and Rupee appreciated quite quickly to the Rs.58 mark against the USD. With many a Indians residing in foreign countries who remit money to India the obvious question was – Is the rupee headed to 55 against USD and should I transfer money to India now?

My answer to many such questions was – “the fundamentals of the economy don’t change overnight just with a stable government and the real effect of policy changes would take months to materialise and I still expect Rupee to stay over the 60 mark against the USD”

One of the first places to start when looking at fundamentals is Implied Exchange Rate calculation. Over the past years the spot rate has tended towards the Implied Rate Line (chart below: using SGD INR)

SGD INR 2014

and the calculation suggests that the SGD INR would move back towards the upward trending implied exchange rate line as the RBI is going to hold the interest rates steady – the inflation is still alarmingly high.

Other factors that would be playing against the Indian Rupee would be:

1. Crop losses due to el Nino weather changes

2. Increase in price of crude if the tensions in Iraq escalate

3. Global slow down in the background Ukraine crisis and escalation in South China sea

As I write the Indian rupee has already crossed the 60 mark against the USD and 48 against the SGD and I maintain that the INR would move towards the 63 and 50 mark against the USD and SGD in coming months.

Advertisements

Postal Stamps: A long forgotten treasure

It had been years since I had looked at my stamp collection and while on vacation this year I wanted to spend some time ensuring that the stamps were still there and in good condition.

Collecting stamps was a childhood hobby and maybe something that was passed down the family (at-least in my case) – my Grandfather, Father, Uncle had all all indulged in stamps at some point or the other in their lives. As a kid I always wanted to have all stamps from all countries and felt the collection I had was not big enough – in retrospect I could nor be more wrong.

So on the second day of my holidays I pulled out the case with all my stamps.I must say it was pretty heavy (much heavier than what I had imagined) – There were many albums filled with stamps, first day covers, miniature sheets, postcards and various other postal items. There were stamps from Russia, China, America, Britain, Hungary and of-course India. Browsing through the collection I felt like a little kid who has been left in a candy store – everything was so pretty and brought back memories of childhood.

Having some time on hand I decided to catalogue the collection for future reference and started with the slow process of noting everything on a spreadsheet. The real challenge was to keep myself focused and not get carried away admiring the stamps. After many hours I had finally listed all the indian stamp sheets that I had and this was just a small portion of the overall collection.There were quite a few stamps of which I had more than one sheet and out of curiosity I thought of why not selling off the extra stuff to buy more stamps (once a collector, always a collector).

So here I was checking the listed prices of my extra stamps on auction sites – and what I saw was nothing short of complete amazement!!

Most stamps had shot through the roof and were selling at 50-100 times the face value.

It was hard to believe what I was seeing and initially I just brushed it aside as people ask crazy prices, but having seen the valuations I had to dig around a little more – after all, this could be a lot of money and what I found left me wide eyed. The prices I was seeing were transacted prices.

The stamp sheet from my collection that had appreciated the most were from 2003 – Aero India and Temple Architecture of India

ImageImage

The temple architecture sheetlet set had 5 sheets which I had bought for Rs.80 each (~1.25USD) and they now commanded a price of Rs.10,000 each (~165USD) a massive 132 times appreciation in 10 years – yielding me a 55% annualised return.

Image

Similarly the Aero India sheet set o 4 sheets with a face value of Rs.600 (~USD10) was valued at Rs.40,000 (~670) an annualized return of 40%

Just as with China the valuation of Indian collectibles increased with the general growth in the country. I also found an old stamp from China which was valued at $50 in the international market and was again baffled to see that one could get upto USD 3000 for the same stamp in Mint condition (unfortunately mine was cancelled and used)

Image

Having looked at the valuation of some parts of my collection I am all re-convinced about stamps as an alternate investment. As with any investment there are risks and for stamps the 2 biggest risks are lack of liquidity and risk of destruction – after all they are delicate pretty thing on paper.

Next I had a look at some coins and they took me on another roller coaster ride of awe and disbelief, but that is for another post..,

INR – Directionless in 4th Quarter

The US debt and budget talks finally reached a resolution yesterday, the congress passed the bill and the much feared US default was averted and the financial markets breathed a sigh of relief. Interestingly the Indian Rupee has been pretty flat both pre and post the US saga.

The drop to 69 against the USD on 28 August was the low point for the Rupee and it steadily regained lost ground in September (Rupee Doing a Bungee Jump – Time to bounce back?) and hovers around 61 as I write.

I often ask myself what has really changed in the past month but can’t find a fundamental reason for the pull back. My take is that it was a technical pull back with Rupee being oversold. Yes one could say that RBI got a new Governor in Raghuram Rajan and that helped Rupees cause, but if changing governors could help the Rupee strengthen by 15% then maybe RBI should abandon monetary policies and use governors to set the direction of the currency :).

Looking at the fundamentals nothing really has changed in the past 2 months – RBI did come up with a FCNR scheme, increase the duty on import of Gold and television sets and a benchmark rate increase. The FCNR scheme is reported to attract 10 billion USD in deposits which would add no more than 3% to the foreign currency reserves. The increase in duty on gold has got the premium over spot soaring in indian markets and made gold smuggling attractive and the increase in duty on television sets has made travel to Thailand and Singapore less attractive – believe it or not bringing in television sets from overseas trips was a great way of subsidizing foreign travel.

On the policy front nothing really has changed in India and no progress is expected until after the next elections in 2014. On the global front there is still a lot of uncertainty and the fear of Quantitative Easing (QE) taper is still there. The general consensus is for no taper before late march 2014 but its an event that will happen sooner or later.

With all the uncertainty and political wrangling I expect the Rupee to remain directionless to the year-end.

63 should act as the pivot against the USD with a variation of 5% either side – a range of 60-65 would be the order. However against the SGD things should be slightly different with 50 acting as a strong magnet.

Rupee Doing a Bungee Jump – Time to bounce back?

 

The Rupee has breached all predicted floors in the past few days and has fallen like a rock.

It touched an all time low against the US dollar yesterday and traded at 68.78 loosing over 4% in a single day. The fall has been particularly sharp in this week as the rupee lost over 8% in just 3 days. Culprit in this case was the passage of Food Security Bill.

The Rupee was trading at 63.50 in 23 Aug (Friday) and with passing of Food Security Bill on Monday (26th Aug) sharply trended towards the 66 mark.

Food Security Bill (FSB) with all its right intentions of providing for the poor is not something the country can afford. The current account deficit has ballooned to over 4% of GDP and the FSB is estimated to cost 3.5% of GDP.

The looming elections in the coming year has got the ruling government to go after populist measures than trying to take some hard steps and get the economy back on track.

As I write this piece the Reserve Bank of India has come out and declared that it would be selling USD to Oil Corporations directly and this should provide some relief to the falling rupee. I would not be surprised that if the Rupee opens sharply higher and recovers all the losses of yesterday. But this relief rally would be short-lived as the fundamentals behind the fall have not changed. RBI’s step can reduce the volatility and demand in the Forex market but does not change the fact that the country does not have the money its spending.

On the flip side the fall of the Rupee might be a blessing in disguise for the economy. Exports from India become competitive and would bring in much-needed business to India. Where other countries like Japan have been deliberately trying to weaken their currency to improve exports India has this golden opportunity presented to it. Now does the government use it to the countries advantage or squander it away needs to be seen.

As an immediate measure my suggestion would be to launch a scheme to provide amnesty on bringing black money stashed abroad to India and investing them in Rupee denominated Bonds. The size of the black money in India is estimated to be 30% of the GDP as per World bank estimates. Of this 30% at least half is stashed overseas (some figures report higher numbers).

The Finance ministry could launch a scheme with 2 alternatives:

1. Bring in the black money tax-free for investing in non-interest bearing Rupee bonds. The money would be locked in for 3 years.

2. Bring in the black money by paying a 14% tax and investing in 5% interesting bearing Rupee denominated bonds.

With India’s Current Account deficit pegged at 4.9% of GDP and Black money overseas of at least 15% of GDP, this scheme could single-handedly support the falling Indian Rupee and bolster the Indian Government’s coffers. The instant demand for Rupee would push the currency up and bring in long-term capital to the country. Government could go a step ahead and allow the Bond Holders to borrow interest free against the Bonds if Investing Food or Energy Sector.

For the longer term, investments need to be made towards achieving food self-sufficiency and improving energy sector. The money collected through the amnesty scheme could be used to build storage facilities and investing in alternative sources of energy.

Want to eat a Big Mac – Go to India!!

“Ridiculous, Insane, Irrelevant…why the hell does one need to go to India to have a Big Mac, I have a McDonald’s just around the corner!!”

That was the reaction I got when I suggested to one of my friends that having a Big Mac in India might be a good idea. What we were discussing was the recent battering of Indian Rupee and his view was that an Indian national working overseas has gained with the falling rupee.

My stand was that well in pure conversion terms, yes every Dollar, Dinar, Euro or Dirham fetches more rupees but the steady inflation rate of over 8% has made the cost of living in the country higher as well. India is no longer as cheap as it used to be and the cost of living in bigger cities can be more or less similar to any other developed country.

In case you have not guessed by now this friend of mine is not an Indian national.

However to prove his point that indeed things are not as expensive in India he pulled out the Big MC Index on his beloved tablet. Here is what I saw – INR is undervalued by over 50% against the USD.

The interactive index can be viewed at – http://www.economist.com/content/big-mac-index

His defence being that if a McDonald’s Burger costs only USD1.5 in India and is USD 4.56 in US then how can one say things in India are not cheap. This was a classic Purchasing Power Parity evaluation and I could see that no matter what I said there was little I could say to show him the bigger picture. So my instant suggestion was ” Want to eat a Big Mac – Go to India!!”

Well we had a good laugh after our banter but this also made me think that the well reported reasons in the media and business dailies just do not seem to hold well against the traditional – Interest Rate Parity and Purchasing Power Parity theories.

With a interest rate of 7-8% on the government securities and purchasing power parity mismatch, as shown by the mc index, the currency is grossly undervalued. Of course, the Current Account Deficit and the huge spend on Gold and Oil import is a big reason for dollar demands for India.

The deficit issue can be tackled by a two pronged approach – making the country self-reliant for energy needs, and increasing exports. The vast coastal lines, desert areas, and rivers are all perfect venues for investing in alternate sources of energy and exports could be boosted by reaping benefits of the weak rupee. Gold is a bigger beast to tackle as I cannot see how India’s love for gold can ever diminish 🙂

On a side note I would still travel to India to have a McDonald’s burger – not because it’s cheap, just so I can get the McAloo Tikki.

SGD INR: 44… 47… 50?

Now don’t tell me you haven’t wondered if SGD can fetch 50 Rupees per dollar 🙂 and I have to admit that with the current rupee weakness it does not look like a impossible number to achieve.

What’s transpired in past 2 months is nothing short of shocking…personally I never thought that the INR could go past the 60 mark against the US Dollar but then I did not expect the Indian Government to bring in the food security bill, in its current format either, which would cost 3.8% of GDP.

The GDP has already been shrinking and GDP growth is estimated to be well below the 6.5% mark as targeted earlier. With rampant red tape blocking foreign investment, tax evasion and upcoming elections the picture doesn’t look to change dramatically in the near future.

On 8th July the rupee breached the 61 mark against the USD and forced the RBI to step in with measures to stem the fall. Since then rupee has stayed below the 60 mark with a weak undertone.

On the other hand the Singapore economy posted a 3.7% growth for the second quarter of 2013. It was more than 15% growth on a quarter by quarter basis. The results looked good but the guidance does not suggest that the trend would continue.

In the meantime, to moderate the housing market, the Singapore government has come up with total Debt Servicing framework which promotes prudent borrowing practices. The SGD in the same time touched 1.28 and has sea-sawed between 1.25-1.28 mark.

So here is what I think is going to happen – The Singapore dollar would weaken towards the 1.30 mark against the USD. This would do well for the Singapore’s exports and the tourism industry. With the weakening of SGD there are rumours that the borrowing rates would slowly increase to keep the housing markets in check. I personally feel that the debt servicing framework is the first step to ensure residents don’t over leverage while buying a property and get in trouble when the interest rates move up.

So as always million dollar question remains what happens to the SGD INR 🙂

My take is that with INR at 60 and RBI showing resolve to not let is fall below and SGD hovering around the 1.26-1.27 mark the mean price for SGD would remain at 47. If the SGD weakens to 1.30 as expected and Rupee settles at 58 SGD INR should march back below  the 45 mark.

However if the RBI measures fail to have an impact the Rupee could weaken to 63 against the USD, mainly on account of rising oil prices which are the biggest drain on India’s foreign reserve. If that scenarios plays out then their is little to stop the SGD INR to touch the 50 mark.

However if I look at the Big MC Index the Rupee is undervalued by almost 60% using the purchasing power parity – more on that another day

SGD INR: Expected Trend till End of June 2013

We are well into second quarter of the year and its time for an update on the SGD INR projection.

Even with my best intentions to share thoughts on the pair as early as April its only now that I got sometime. Neverthless there have been some interesting developments in the past weeks which can impact the movement of the pair and its a good time to try and ascertain the trend in light of these.

On April 13 2013 the MAS maintatined its tight monetary policy stance even though the GDP unexpectedly contracted in the first quarter of the year and On 3 May 2013, the Indian Central bank lowered the key rates to 7.5%.

There was a expectation that with slowing GDP growth the MAS would allow the SGD to weaken against the other currencies and the USD-SGD might touch 1.28 mark. However with the inflationary pressures the monetary authority decided to keep the band and slope of policy bank unchanged.

On the other hand the RBI lowered the rates to boost growth in the slowing Indian economy.

Both the events are positive for the respective currencies and though INR has remained around 54 mark to USD, SGD moved from lows of 1.25 to 1.23 after the news.

With both the currencies showing some strength the SGD INR pair would remain stangnant in the 42-44 band. The pair has formed a strong resistance at the 44 level and I do not see it breaching this in the next few months.

With slowing growth the SGD might march back towards the 1.25 mark which would push the SGD INR pair towards the 42 levels.

So if you are looking to invest in India then a exchange rate of 43.5 – 44 would be a good rate to use

Over 5% annualised return with Low Risk Funds in 3 months

Close to 3 months since I first talked about the Low Risk funds that are liquid and generate good returns in my post – Good returns and Low Risks with Funds that Invest in Singapore Bonds and its great to see that 2 funds have generated over 5% annualised returns in 90 days.

United SGD Fund and Fullerton Short Term Int Rt have gained 1.44% and 1.18% in this period clocking annualised gains of over 6% and 5% annually.

Fund Performance 3 months

My personal favourite Nikko AM has lagged behind at 2.64% annualised but still much better returns than a bank deposit, Though I must say that mid way I did re-allocate some money to United SGD and Fullerton Funds when the SGD crossed the 1.25 mark against the USD.

I have noticed that these funds generate better returns when SGD is strengthening. Looking at the returns in past 3 months I am going to re-balance my portfolio and move some money from US Equities to these funds before the “Sell in May, Go away” phenomenon hits the wall street. Till then enjoy the gains 🙂

 

SGD @ 1.30 in next 3 months

“What? you must be kidding!!”

I know, I know – that’s exactly what my reaction was looking at the chart for SGD USD. I would not have bothered to look at the charts if not for SGD breaking 1.24 mark, specially not after the forecasts earlier in the year by leading financial institutions was for SGD USD to break the 1.20 barrier.

SGD forecast

The charts show an interesting trend – the one of SGD bottoming out and heading higher. Overlaying that with macro economic picture confirms the trend.

Now if you are wondering what has changed in just 2 months then I would say its just the feel good factor nothing more, other bits were in the making for long.

MAS provide guidance on SGD through monetary policy and the NEER bands for SGD but rarely suggests a target. The stance of MAS has not changed.

My hypothesis for reasons of SGD weakness primarily starts by looking at the bond markets. Singapore has a robust economy and reserves which make SGD government bonds literally risk free. In the past years money flowed into SGD Bonds seeking safety of capital. Also the property market in Singapore attracted a lot of foreign investors.

With the US stock markets on all time high, Nikkei on a bull run and general sense of economy looking better the capital has started moving from safe havens to more risky assets. I am guessing that the money if moving out of SGD bonds to equities here. Also with the latest government measures to cool down the property market some of the hot money chasing the properties in Singapore would be looking for other avenues. Both these factors mean that demand for SGD denominated assets would go down thereby resulting in lesser demand for Singapore dollars.

With the inflation well within Government targets and  falling fuel prices a weaker SGD augurs well for the economy – specially tourism and services sectors.

You would still be wondering what makes me boldly suggest a 1.3 target specially when the charts suggest a reversal at 1.28 and yes I agree I might have pushed a little too far with 1.30 forecast but markets are not always rational and tend to overshoot, nevertheless 1.28 certainly looks very real 🙂

 

SGD INR – Expected Trend till Mar 2013

Its hard to believe that we are already in February of 2013 and that calls for me to keep up on my promise and share with you my thoughts on SGD INR movements in the near term.

The trend so far has been inline with what I had expected in Dec 2012 – The pair has maintained the range of 42-46 with a downward bias (Read more: SGD-INR: How does 2013 look like?) and trades at 42.99 as I write.

SGD INR made multiple attempts to breach the 45 mark but have been unsuccessful. In the meantime a few interesting developments have happened on the fundamental front.

RBI came out and cut the rates by 25 basis points to stroke growth and the financial markets have taken a more “risk on” approach. The former would result in NRE deposit rates being lowered in the long term and the latter would attract FII in to the Indian Markets chasing growth.

At the same time the Indian Finance minister has promised financial reforms and started with reducing the fuel subsidies which helps reduce the Indian Budget deficit. This is also positive for the Rupee.

On the SGD front the currency has lost 2% against the USD and now trades at 1.24 as compared to 1.22 late last year.

These factors combined have seen SGD INR soften below 43 mark.

The question which people ask often is that how low will the pair fall and will SGD INR reach 45 again?

My view is that in the short term the pair would increase and move to cross the Rs.44 mark – The US debt ceiling discussions are due soon and so is Indian budget for 2013.

The uncertainty on the policy front would result in INR weakening against the USD which would mean a weaker INR against the SGD.

The recent spike in Crude Oil prices would add to woes for Indian Rupee.

So in-case the recent drop of SGD/INR has left you scrambling like Oct 2012 then don’t panic – next few weeks should give you an opportunity to see the pair touching 44 again.

 

Enjoy the Holidays and wishing you a very Happy Chinese New Year!! Gong Xi Fa Chai