Friday 29 December 2017

Why Indians invest in Gold/Silver?

The chart below shows the returns from gold and silver in Indian rupees during last few years.

Interest rates in India currently are about 7%. While the average returns from gold/silver is above 12%. This is why many Indian prefer to invest in precious metals instead of bank deposits.

During the last 17 years (1-Jan-2001 to 31-Dec-2017), average Indian stock market returns are 17.9% (based on Nifty index); but while investing in stock market taxes and commissions are deducted. So the actual return, in hand, to the investor is much lesser. Since most buy/sell of gold/silver happens in cash, usually no taxes are paid. Hence Indians prefer gold/silver investment as compared to stock markets.

Thursday 28 December 2017

Bail in / Depression coming.

World news keeps talking about the poor finances of PIIGS (Portugal, Italy, Ireland, Greece and Spain) nations. The chart below shows the NPA of Indian banks.

India's financial situation is as bad as PIIGS, but the news media creates the impression that India's economy is doing great.
How will this problem end? There are only 2 solutions

  1. Hyperinflation.
  2. Depression and bail-in.

In Hyperinflation, the government creates lot of currency. This wipes out the debt. But it also causes all savings to be lost. Currency notes become almost worthless. Indian politicians will likely not choose this option voluntarily because the chances of revolt are high. The government will likely fall, if inflation rises.

So India during the next few years will have a depression. The government will likely

  • Make high denomination notes invalid.
  • But limits of bank cash withdrawals.
  • Seize some percentage of currency in bank accounts.
By looting from people, the banks will be saved. Prices of stocks and real-estate will fall by a huge percentage.

To prepare for this bail-in, the government is passing FRDI bill. Prepare accordingly.


Sunday 10 December 2017

Why BJP should suffer in Gujarat?

In 2012 Gujarat state elections, BJP had got 115 seats. In current elections, the results will be declared on 18-Dec-2017. I hope that BJP receives much fewer seats than 115 because BJP has made some big mistakes e.g.

  • Demonetization hurt many people.
  • GST is causing problems for small businesses.
  • Religious fanaticism has increased under BJP rule.

If BJP is not punished, it will get more bold in continuing its existing path.


Saturday 9 December 2017

FRDI bill puts depositors at risk

Indian government is about to pass FRDI (Financial Resolution and Deposit Insurance) bill. Once this bill is passed, then if a bank incurs losses, the losses will be passed to the depositors.

Let us take an example: Let us say Bank-A has lot of NPAs (non-performing assets). Now, instead of share-holders (usually government for most banks) bearing the losses, as per the new FRDI bill, the depositors will have to bear the losses i.e. all deposits in the bank will be used to compensate for the NPAs. So if I have money in my savings a/c and fixed deposits in Bank-A, and Bank-A makes huge losses; then I will lose my money, even-though it was no fault of mine that the bank lost the money.

How to protect our savings from this bail-in? Keep minimum amounts in banks.