Prajna Capital - An Investment Guide

When the government makes use of its revenue and expenditure programmes (to achieve the above mentioned goals) and affects the aggregate level of demand for goods and services in the economy, then this action is essentially known as fiscal policy. Related to fiscal policy are deficits and surpluses. When the government’s expenditure exceeds its revenue, then there is a fiscal deficit and the opposite of this is known is fiscal surplus. What is the difference between fiscal and monetary policies? Renowned economist Keynes believed that taxes and expenditure decisions, that is fiscal policy, should be used to stabilise the economy. According to him, government should cut taxes and increase spending to bring the economy out of a slump, this kind of a policy action is known is expansionary fiscal policy. On the other hand, government should increase taxes and cut expenditure to bring the economy out of inflationary pressure, that is, it should follow a contractionary fiscal policy. The cla...

Average Gain Between Any Two Downturns Has Been 186% IF you have lost a fortune in shares by now, the best way to make it up perhaps could be by buying some more. Since the Great Depression of 1929, the world has undergone 12 major bear market phases. The average bear market has lasted about 22 months, and the market has fallen by an average of 51%. However, the average gain during the bull market between any two downturns has been an eye-popping 186%. The index here in question is the S&P 500. Bull markets — after every recessionary phase — have always been good for investors. All major bull rallies since end-1930 have resulted in markets gaining between 50-500%. Historic numbers show that the magnitude (size or breadth) of a bull market is much heavier than that of a bear market. The million dollar question is: Are we at the threshold of another bull market rally? Markets could go up intermittently, but convincing rallies will take time to happen. The current bear phase is...

Some options for the risk-averse in times of rising inflation The term inflation refers to a rise in the general price levels. Inflation is measured by an index which is calculated by taking into consideration a set of goods and services, and then the prices of the items in that set are compared to prices one year ago. In India, inflation is measured based on the wholesale price index ( WPI ) which measures the change in prices of a selection of goods at wholesale rates. Inflation gradually reduces the purchasing power of your money and therefore it becomes very important for investors to understand the impact of inflation on their investments. Investors, especially senior citizens, put a lot of emphasis on the safety of their principal amount and in the process they sacrifice the yield on investments. For example, if an investor deposits his money in a savings bank account which generates 3.5 percent per annum and the inflation rate in the market is around seven percent, he is making ...

With the economy expected to grow at 7.5 -8%, there’s no reason why a long-term investor should not enter the market at every fall THE continuous decline in stock prices over the last few months has adversely impacted corporates, insurance companies, financial services firms and mutual funds, amongst others. But these are players who, perhaps, have the wherewithal to withstand such declines. This may not, however, be true of the small investor — the individual investing modest sums for a house, daughter’s marriage, retirement and others. Should then the small investors rush for the sidelines? Or should they view this as a buying opportunity and plough more money into the market? A none too distant survey by an international management school had majority of the experts surveyed saying an emphatic ‘neither’ to the question. This being the consensus, let us ponder on how we can insulate the retail investor. These are not nuggets of wisdom which has remained hidden so far. These are the t...

While FY09 may be a crunch time for India, given the situation of a rising current account deficit and lower capital flows, the pressure could ease a bit from FY10 IT IS difficult to make a call on how FY10 is likely to pan out, but one thing is clear, the days of 9%+ growth are over, believes Citigroup. As per a recent Citigroup Global Market report, India has lost the opportunity to sustain those levels for now, with growth coming in around 7%+ levels in FY09-10. With supply side measures not really being effective in bringing inflation down, Citi expects RBI to continue to raise rates to temper demand-side pressures. Much further monetary tightening however poses downside risks to both Citi’s FY09 and FY10 GDP estimates of 7.7% and 7.9%, respectively. Rising interest rates and input costs are also likely to result in a deceleration in investments to 10.4% and 7.9%, respectively. But what could possibly offset this are the low real interest rates and improvements in productivity. Wh...

Inflation is part and parcel of any economy. High growth economies usually have high inflation. So what is inflation and how it fluctuates and what causes this variation. Here is a small note on that. Inflation Inflation is a measure of rise in general price levels of goods and services. Inflation is measured by taking a set of goods and services, and then the prices of the items in the set are compared to prices one time period ago. In India, inflation is measured based on the wholesale price index ( WPI ) which measures the change in prices of a selection of goods at wholesale prices. Types of Inflation Inflation is primarily of two types - inflation due to cost push and inflation due to demand pull (supply side). Cost push inflation is due to rise in costs of input materials or labor, whereas demand pull inflation is due to increase in demand beyond installed capacity. Controlled inflation is good for the economy as it increases motivation levels of people. The government, in co...