Banking, Financial & Investment Industry
Banking
The Reserve Bank of India on Friday, 5th February, 2010 sold the last batch of government bonds worth Rs.80 bn completing the government’s borrowing programme of Rs4.51 trillion for the fiscal ending 31 March 2010. The bonds were fully subscribed. The cut-off yield on a 10-year bond was at 7.6777% and the yields on the 6-year and 17-year maturity bonds were at 7.5071% and 8.3228%, respectively.
At first glance, the Reserve Bank of India’s (RBI) credit policy seems to be good for the markets. If growth is indeed as strong as RBI predicts and if interest rates do not really go up immediately, as bankers are saying, it will indeed be an ideal situation.
Banking and financial sector professionals, who have spent possibly a decade looking for lucrative overseas jobs and postings, are increasingly shying away from foreign assignments in the wake of the financial meltdown in Western economies.
In fact, the professionals are reluctant to go outside India; there is an increasing exodus of professionals from developed markets into the country and other emerging markets. The recovery in the Indian markets has been much faster than the global markets. There is a sense of comfort among professionals here especially as the economic recovery has been faster than expected.
Unlike a few years ago, now students are reluctant to go outside India for jobs as there is a huge level of uncertainty in the developed markets. Blame it on the Greeks, or the western economies in general, or the much feared Chinese bubble. Students, nonetheless, feel secured back home.
Financial & Investment
Investment is referred to as the concept of deferred consumption, which might comprise of purchasing an asset, rendering a loan, keeping the saved funds in a bank account such that it might generate lucrative returns in the future. The options of investments are huge; all of them having different risk-reward trade off. This concludes that the investment industry is really broad and that is why understanding the core concepts of investments and accordingly analyzing them is essential. After thorough understanding of the investment industry, can an investor create and manage his own investment portfolio such that the returns are maximized with the least risk exposure.
There are different types of investments are -
Cash investments: Cash investments comprise of savings bank accounts, certificates of deposit (CDs) and treasury bills (TBs). All these types of investments render a low interest rate and prove to be quite risky during times of inflation.
Debt: This type of investment gives returns in the form of fixed periodic payments and the fixed capital appreciate at maturity. This is safe bait for the investors in the investment industry and has always proved to be the risk free investment tool. Though, it is generally low in risks, the returns are also lower than the other peer securities.
Equities: Investors can also buy stocks (equities) from the secondary markets and be a part of any business corporates that are listed in the bourses. By this way, one can become the part of the profits that the company generates. But one should remember that stocks are generally more volatile and carries more risk than bonds.
Mutual funds: They are usually a collection of stocks and/or bonds that a fund manager selects for a pool of investments with specific investment objective e.g. growth or income. The investor does not have to track the investment, be it a bond, stock- or index-based mutual funds.
Derivatives: Derivatives are financial contracts, whose value is derived from the value of the underlying assets like equities, commodities and bonds. They can take the form of futures, options and swaps. Investors (should) choose derivatives as a hedge as they are used to minimize the risk of loss that result from fluctuations in the underlying asset values.
Commodities: The items that are traded on the commodities market are agricultural and industrial commodities and they need to be standardized. Commodities trading have always been giving high returns and thus they are the riskiest of all investment options. One, who trades in commodities, requires specialized knowledge and analytical capabilities.
Real estate: Investing in real estate has to be a long term affair. Funds get hooked into the real estate sector for a considerable time period.
Warren Buffett has always mentioned that investment in India should always be a long-term story - as the industry has been growing from an emerging market to a developed one. The next 10 years in India will surely give good returns.
India's GDP growth would be around 7% to 7.5% in 2010. The sustainable growth rate of India would however hover around 7%. Before becoming a mature economy, India has another 20 to 40 years to spare.
The financial sector in India, specifically the banking stocks have been doing well now. The health of the Indian banks seems to be strong and a lot of growth is expected in the organic frontier. The IT stocks too have been faring well and that is why it is advisable that the investors invest in stocks of quality companies that have a good earnings track record. The other choice of stocks has been the consumer goods stocks, auto stocks, agriculture-related stocks.
The investing story in India has not been always that smooth. Pitfalls are sure to co-exist. The main restraint on India's growth now happens to be its infrastructure. On the other hand, infrastructure is India's biggest opportunity as well. The fiscal deficit of India also poses a big threat to the investment industry in India. For an emerging economy like India, it is recommended that an investor always balances the unique risks against the potential for high long-term growth. Accordingly the decision for investment should be made.
Of late, the Indian economy is turning out to be extremely conducive in terms of domestic and foreign investments. India Investments has been the major propelling force towards India's attainment of self-sustained growth by way of rapid industrialization. The pioneers of the investment industry has been Foreign Direct Investment (FDI) and Investments made by NRIs.
Foreign Direct Investments in India has been gearing up momentum every passing day. So, to view an economy which is entirely open to the global markets, the investment industry in India should be groomed in a manner that the maximum returns are achieved. It is advisable that the investment industry's potential should neither be overestimated nor underestimated. We should know how to deal with the complexities of the investment industry and grow along with it.