Weakening rupee against dollar

Rupee at all time low against the dollar

Today’s very important news on all business channels are that rupee has trading all time low against dollar. Every analyst wants to know that what is the reason behind this weakness of rupee and how would it impact on overall economy. The rupee has been falling for five straight weeks. Right now it is at 57.92.

According to analysts, there may be many reasons for this weakness. According to my view, the widening trade deficit of our economy is the prime reason for this slide. However, government is struggling to control it but has not got succeed till now.

There is overall consensus among the masses that the UPA government is not likely to implement the reform programme. It is unlikely for this government to generate heavy capital inflows for reform the economy. Oil and gold imports bill are still worry factor for deficit.

Foreign Institutional Investors are selling index future for hedging their stock position. It is again expectation of weakness in the stock market in near term. The main reasons behind this slide of rupee are weak economic fundamental and widening trade deficit.

Exporters like IT firms will gain from this rupee weakness as these firms earn majority of revenue in dollar term. This weakness would also give some support to falling gold prices. The gold prices has been down in rupee term 15% during 2013.

It is bad for the student who wants to go abroad for higher education. It will increase India’s current account deficit as oil companies will pay in dollar term. As of now, the global prices of oil are falling so not near term threat for price hike. The companies who import the raw material would be affected by this weakness of rupee.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Positive signal for economy in budget 2013-14

Some positive signals to control current account deficit in Union Budget 2013-14

The Union Budget 2013-14 has failed to meet high expectation from the common man and Dalal Street. There is no any announcement for revitalise the investment cycles or attract savings in capital market. The confusion over retrospective changes in Section 90A of Income Tax Act relating to relief to foreign investment is not good. As foreign investment is very important factor to fill in the gap of current account deficit.

There are some positive signals by government also. To control current account deficit and to check the increasing gold demand government has increased the income limit from 10 lakh to 12 lakh for eligibility for Rajiv Gandhi Equity Savings Schemes (RGESS).

The government has reduced the planned expenditure for rural development, agriculture and social sector as against the expected increase in planned expenditure.

For first-time home buyers during 2013-14 availing loan up to Rs 25 lakh and having the cost of property of less than Rs 40 lakh will be eligible for additional deduction of interest of up to Rs 1 lakh. (At present Rs 1.5 lakh tax exemption on interest paid on housing loan under section 24A)

The government is also planning to launch inflation indexed national savings certificates subject to RBI consultation.

In any immovable property sell transaction except agriculture have to deduct TDS of 1% on the value of property where the value of deals exceeds Rs. 50 lakh.

The surcharge has been increased from 5% to 10% for those companies whose revenue above Rs 10 crore. Additional 10 % surcharge has been introduced for those individuals who are above 1 crore income slab.

Dividend Distribution Tax (DDT) increased from 5% to 10%. Custom duty on set top boxes, specific excise duty on cigarettes and excise duty on SUV increased. Import duty on gold increased from 4% to 6%.

The above mentioned step has given positive signal from government side to control current account deficit.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Import gold duty hike and link gold ETF to gold lending

Good news for gold ETF investors

Increasing gold import bill and crude oil bill are the biggest cause of  worry to govt of India today. The government announced to raise duty on gold from 4% to 6% yesterday as the demand of gold is not reducing in our country and current account deficit is not coming down. To combat this situation the government has increased the duty on imported gold.

When we import the gold, our foreign reserve went out of the country. India has already imported gold worth 38 billion $ till third quarter of financial year 2012-13. This step is towards reducing demand and the improve the of forex reserves no.  

While it is still uncertain how much of an impact this 2% hike will make. Earlier such type of step we have already seenThe high price is driving the demand, and if the price goes any higher that will drive demand higher as well.

The other step is good news for ETF gold schemes investors. Apart gold duty hike, the other important announcement is linking gold ETF schemes to bank’s gold deposit schemes. When we buy a unit of a gold ETF, it represents about a gram of gold and the gold ETF sponsor buys and stores gold on your behalf with a custodian. This gold is lying idle and give no return at all.  The ETF’s gold will be linked to gold deposit schemes where gold merchant or jeweller can borrow the gold from banks and pay interest on this gold, and at a future date pay the money equivalent to the gold that they borrowed at the then prevailing price.

This will help reduce the import of gold to the extent that it is borrowed, but in the long term if the demand for gold doesn’t come down then it will not reduce imports, it will perhaps play a small role in delaying the imports but not make a long term impact on lowering gold imports or the current account deficit.

However, this would be good news for ETF owners because any interest or earning that the ETF earns out of lending gold will ultimately accrue to the owners and it would reflect in their schemes returns. The more details are still awaited, but if the lending starts, it would be good news for gold ETF investors.

Feel free to ask any queries related investment

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com