 |
| November 20, 2015 |
|
|
|
|
Impact 
While the rising prices of life’s essentials are pinching the common man’s pocket, approximately 85 lakh Indians will have a reason to smile. Their pockets will be happier soon. The 7th Pay Commission recently submitted its report to the Finance Ministry recommending 23.55% net wage hike for all Central Government employees and pensioners. As per data quoted by the 7th pay commission there are 33.02 lakh employees in various departments of the central government and 52.96 lakh are the pensioners.
A wage hike is part and parcel of any business. Once every decade, the Central Government revises the pay structure of central government employees. If it deems appropriate, the Government is at liberty to allow a higher than recommended wage hike. We’ve seen it been done before by previous governments. The fact is such wage hikes definitely impact people at large and their quality of life as well as affect Government’s coffers. Following the footsteps of the Centre, now even the state governments will consider increasing the pay of its government employees, subject to health of state finances.
Impact of 7th Pay Commission on government employees (although obvious, it’s noteworthy)
- Purchasing power will increase and improve life overall
- Revision in pay structure will result in higher allowances
- Those who have pension benefits, gain when the pay scale is revised
The devil is in the detail…
- Matrix based open pay structure is proposed
- The commission suggests that the changes in prices of the commodities that constitute a common man’s basket should be made the basis for revision of that matrix periodically without waiting for another Pay Commission.
- Minimum pay is suggested to be hiked by 2.57 times i.e. from Rs 7,000 at present to Rs 18,000
- Maximum pay is fixed at Rs 2.25 lakhs
- The ceiling of gratuity is proposed to be raised from the existing Rs 10 lakh to Rs 20 lakh from January 01, 2016
- The rate of annual increment is advised to be 3%
Impact on the economy as a whole
- The expenditure of the Government is likely to increase by about 10.0%, as the salary bill of the Central Government may rise by a little over Rs 1 lakh crore.ces
- Some experts believe the wage hike may strongly pull up the demand for housing, consumer durables etc.
- Revised structure may put upside pressure on inflation
- Fiscal discipline of the Central and State governments may be challenged
- Money available for the developmental projects may reduce drastically
PersonalFN is of the view that wage hikes definitely affect the general price level in the economy. However, expecting a big jump in the purchasing power of all the government employees could be a slight overestimation, unless state governments too, become generous. As per the census data released in 2011, about 85% of central government employees are Group-C and Group-D, placing them at the bottom of the hierarchy, mostly doing semi-skilled or unskilled jobs.
The RBI expects the Government to follow absolute discipline with its expenditure. The RBI Governor has been very vocal in his comments on the subject. Speaking at the press conference, he said, “The coming Pay Commission Report could add substantial fiscal stimulus to domestic demand, but the Government has reaffirmed its desire to respect its fiscal targets and improve the quality of its spending.”
Clearly, the ball is now in the Government’s court. West Bengal and Uttar Pradesh have a large proportion of population working in government departments. This wage hike is a crucial decision especially for these states as they are going into elections in 2016 and 2017 respectively. But lack of fiscal discipline may affect the investor sentiment.
What you may want is this...
As wage hikes are absorbed by the taxpayers like you, you may have a modest expectation—Government departments would be better off getting divorced from red tape and to cease harassing you on your next visit (by chance you do). One can only wonder if wage hikes and less corruption share any correlation.
|
Impact
The Parliament’s Winter session begins from November 26, 2015. The Government can only hope that it won’t turn in a battlefield. Post Bihar Elections, the opposition has been demonstrating great unity and “parties sharing similar philosophies” appear determined to corner the NDA Government on burning issues such as intolerance and soaring prices of pulses. Essentially, the Winter session is supposed to lay the foundation for the budget session and if it ends undecidedly, the Government may have to step back on various fronts.
To know why this winter session is so important, the list of bills, as follows, pending before houses is enough
Parliament also needs to discuss...
- The bankruptcy code bill
- Amendments to the RBI Act
Investors expect the Government to show alacrity to sanction the bills ed by both houses and set the ball rolling for big bang reforms. However, chances of the Government meeting these expectations seem unpromising. Performance of the Government on the floor of both houses may set the tone for markets, going forward. Meanwhile, it has sent a strong message to the investor community by pushing through some crucial reforms such as the power sector reforms.
PersonalFN believes, expecting too much from the winter session may lead to disappointment. You, as an investor, should be cautious instead. The legendary investor, Warren Buffet rightly says, “Be fearful when others are greedy, and greedy when others are fearful.”
|
Impact
When Mr. Narendra Modi was the Chief Minister of Gujarat, he took potshots at the UPA Government for its ineffective economic policies. As Prime Minister, one would naturally expect his Government to take corrective steps to get the economy back on track. While it remains the job of the Government to analyse what went wrong in last 1 year and 6 months; the fact is, nothing has changed significantly at the grass-root level.
So far we’ve seen only the opposition slamming the Modi Sarkar for failing to deliver on promises made before the 2014 Lok Sabha Elections.However now, the dissent has been growing among his party leaders. Sure, the Prime Minister is doing all the hard work and visiting nations, trying to strengthen bi-lateral and multi-lateral relations, attracting foreign investments and attention. But when you look at numbers screaming neon-bright—the economy isn’t out of the woods yet. Take the example of the recently released data on industrial growth and retail inflation.
Here’s how it works. The Index of Industrial Production (IIP) that captures the level of industrial activity and the Consumer Price Index (CPI) that tracks trends in retail inflation are two important economic indicators. Currently, they appear discouraging.
Sagging growth and escalating inflation
 |
 |
|
Data as on November 12, 2015
(Source:MOSPI, PersonalFN Research)
|
Growth in industrial output as measured by the movement of IIP fell to 3.6%, a 4-month low point in September.
IIP fell to a 4-month low in September
- Manufacturing growth looked disappointing at 2.6%
- Activities in Electricity and Allied sectors gathered pace, sector posted 11.4% growth
- Capital Goods segment grew at 10.5%, but it failed to pump up manufacturing growth
- Mining continued to rumble under pressure, growing at 3.0% in September
- At 8.4% growth in consumer durable looked pinkish but the non-durable segment disappointed at a fall of 4.6%
On the other hand, retail inflation measured by the movement of CPI shot up to 5.0% in October 2015 as against 4.41% in September 2015, and 4.62% in October 2014. Food inflation rose sharply to 5.25% from 3.45% in September 2015, and 3.88% in October 2014.
To know more about this and PersonalFN's views over it, please click here.
|
Impact
The progressive transformation of any nation, from a developing nation into a developed one, largely depends on how efficiently it uses energy. The energy sector is the lifeline of any economy; however, the performance of India’s energy sector has somehow remained shady.
Be it power generation or gas pricing, the energy sector has faced many challenges and often been surrounded by huge controversies. It stands to reason why investors investing in energy companies haven’t been able to see returns even in the long term. Companies such as NTPC, Crompton Greaves, PTC India, ONGC, and Sterlite Technologies, to name a few haven’t rewarded investors in the last 6-8 years. On the other hand, sectorial funds investing in this sector have drained wealth over the last 5 years.
To read more about this news and our views, please click here.
|
The ball’s rolling and the Sovereign Gold Bond Scheme has seen an overwhelming response with people applying for bonds over Rs 150 crore.The response to the first tranche, which was opened for subscription from November 05 to November 20, reflects that appetite for gold is still very high in India. Rs 2,684 per gram (per unit), has been decided as the price of issuance for the Tranche-1.
PersonalFN believes the scheme is an attractive alternative to buying physical gold and competes with gold Exchange Traded Funds (ETFs). Before you get hooked to it, make sure you hold not more than 10% 15% of your portfolio in gold. While the Gold Monetisation scheme has received a tepid response as only 400 grams has been collected under the scheme. |
Economic Stimulus: Attempts by governments or government agencies to financially stimulate an economy. An economic stimulus is the use of monetary or fiscal policy changes to kick start a lagging or struggling economy. Governments can use tactics such as lowering interest rates, increasing government spending and quantitative easing, to name a few, to accomplish this.
(Source: Investopedia)
|
Quote : "All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock."
- Charlie Munger
|
|
|
|
© Quantum Information Services Pvt. Ltd. All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Private Limited Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 CIN: U65990MH1989PTC054667
|