Impact of China's Slowdown on India

While Indian have been grappling with the volatility in Indian equity markets; where the broader segments  / markets have seen corrections, with even leading large caps down by 25% - 30%; our immediate neighbour, China, has already lost $3 Trillion in market value since January 2018 with 7.9% drop in Shanghai Composite Index.

While a layman, would infer that trade war with USA being the reason; however, this is just one factor. As we saw IL&FS defaulting on its repayment obligations in India; China's deleveraging campaign led to bond defaults of unseen magnitude. The whole scenario is further impacted by rising interest rates and strong US Dollar.

Many investors are thinking and interpreting the fall in Chinese equity market and economy as whole, being advantageous to Indian markets. However, this is not as simple and straightforward as it seems. Arun Jaitley, the Finance Minister, had stated that India is not a part of Chinese Supply Chain and Indian could become the "additional shoulder", supporting the global economy.  However, Dr. Raghuram Rajan differed from the opinion of the Finance Minister. 

Trade Aspect : 

India primarily exports chemicals, raw cotton, petroleum products & spices. Any slowdown in Chinese growth rate would result in the slowdown in demand for such products in China.

India majorly imports oil & other minerals; and slowdown in China means cheaper commodity prices. While on one hand this would benefit India; however, on other goods it might resulting in dumping of goods as slowing China means, more low prices of imported goods; as inventories would be building up in China due to slowdown.

Statistical Evidence :

As per Centre for Policy Research, India, the long - run elasticity of India's GDP to China's GDP is around 0.4, i.e., 0.5pp decline in Chinese Growth  would wipe off 0.2pp from India's Growth. Regression & Scenario Analysis led to startling fact; if China slows by 150bp, India's GDP Growth  would be negatively impacted by 80bp. 

It is a remote possibility that India would replace China as the manufacturing hub. Infact, India missed the bus during the tenure of NDA, led by Late Shri Atal B Vajpayee, who infact wanted to change the archiac labor laws, which he had to shelve the plans, as there was serious opposition from within and outside the coalition government.

Thus, while slowdown in China would impact us, but not to the great extent; however, it would not result in any such gain in terms of productions being shifted to India from China. The slowdoen in China would not be something to be cheered about, as it would deeply impact those countries whose trade relations are deeper with China.

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Dwarka sub-city residents prefer moving to larger homes within locality

The article was published at MagicBricks.Com and can be accessed at: here.

 
Dwarka sub-city is mainly an end-user driven market with the whole infrastructure up and running. It is well-connected with Metro Rail and airport, and a destination of choice for home buying.

We have seen a trend wherein, existing residents of Dwarka sub-city look for better and bigger apartments within the Dwarka sub-city itself. These are primarily the ones who are residents of the earliest launched societies in the area and are now looking towards societies with better maintenance and construction quality. In a way they are looking for upgrade. Those who are already residing in a 3BHK with twin car parking, power back-up, etc and are looking towards 3BHK+servant’s room with other things remaining the same.

We have seen good inventory available in Sectors 21 and 22 and now Sector 19B being a hot spot. The price range for the 1,500 sq ft, 3BHK apartment, with parking facility and power back-up in Sector 7, is Rs 95 lakh to Rs 1.15 crore, depending upon location of the society, infrastructure quality, internal maintenance and many other factors.

Is it the right time to buy?
For Dwarka-Gurgaon Expressway, this is the best time for the first-time home buyers, as they will not only get the property at discounted rates, but also may get further discount of 3-6 per cent, in terms of freebies.

The charges like PLC (Preferential Location Charges) and club membership can be waived off, based on the level of negotiation and the type of property.

For Dwarka sub-city, we have seen the prices softening for the past six months, and there is no reason for delaying the decision now.

Is it the time to invest?
For Investors, Dwarka-Gurgaon Expressway still holds a lot of opportunities, provided one can spot the properties under distress. We have been seeing the quantum of distress sales and one can have a great bargain in these times, when short term real estate investors are exiting.

It is not recommended to go for investment in the said stretch as far as the newly launched or already launched properties are concerned as better options are already available. An investor could rather consider other alternative such as Sohna in Gurgaon and also Neemrana.

Neemrana provides the best point of price-entry that many have missed at the Dwarka-Gurgaon Expressway. This is backed by the whole infrastructural development that is coming up to support it, with Japanese city coming into existence along with many other international firms setting up their base.

Rajat Dhar, managing partner, Cogent Advisory

The article was published at MagicBricks.Com and can be accessed at: here.

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Avoid Bank Planners, says Law Firm

Indian investor has been at the receiving end, when it comes to their wealth being managed by banks. SEBI accepted that there have been a rampant mis-selling of financial products at banks, and the same was mentioned by SEBI in their Wealth Management Guidelines dated 28th June 2013. 

Based on their observation SEBI came up be the Wealth Management Guidelines for banks and Investment Advisor Guidelines for Independent Financial Advisers. But there is a long way to go as far as Indian Investment Management industry is concerned.

Australia, which is one of the mature financial & wealth management market, with a well defined wealth management process being followed and adequate consumer protection mechanisms in place; has come across a couple of cases of Investor grievances. This has again brought into limelight the fundamental factor that mars the wealth management, when practised by the bankers.

Maurice Blackburn, a law firm, has urged consumers to avoid taking advices from the financial planners employed by the banks. To this, the Principal John Berrill added that major banking institutions wanted to keep their money in-house. You can access details of their observations here, click here.

You, an investor and a saver, can very well identify with this logic clearly due to the fact everytime your banker visits you, he speaks about the Insurance based investment. This results into clients' money being rotated within the sister concerns of these financial institutions and banks, apart from the hefty commissions that banks make on the sale of insurance products (say ULIPS).

What an investor needs is a financial adviser and not bank relationship manager. The reason is quite simple; as the role of financial adviser is to provide the best possible investment alternatives available in the market to the client, alongside the ease to transact and management of the portfolio. Since, a financial advisory & wealth management firm is not a part of any banking group, so it is not limited in the types of product lines available or the platform. On the other hand, it has been observed that the bank has a very limited investment options to address the wide range of  financial requirements of its clients.

The current wealth management set up at banks in India, is marred by conflict of interest; where by bank makes earning everytime the client's portfolio is churned. The portfolio is to be managed as the goal based portfolio and not transaction portfolio.

What is the way out for the clients...?

Simple, go and find a good financial adviser for you & your family; so like you are working to build the corporation you are employed at, so will your adviser build & manage a robust financial portfolio for you and your family.

You can read more about us here.

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Banks' Wealth Services Under RBI Scanner - RBI Guidelines & Observations

Reference: RBI Circular # DBOD.CO.FSD.No./24.01.026/2012-13

Draft Issue Date # June 28, 2013

Not long ago you might have felt being cheated by your bankers, on account of mis-selling of financial & investment products over past so many years. But, the irony of fact is that, it has been too wide spread across indian banking space; that now even RBI has taken notice and covered it in the draft of wealth management guidlines.

Taking in account recent and ongoing instances of misselling being experienced by clients at banks; RBI has now shown signs of coming down heavily and has issued draft guidelines for Wealth Management Marketing / Distribution Services offered by banks. For the first time RBI has come with the reasons as to why mis-selling has been observed to be so rampant at Banks; and that it is the need of hour to regulate the Wealth Services being ofered by banks.

Wealth Management

In the draft guidelines, RBI has quoted that, banks offering wealth management services are exposed to reputational risk. This has been evident on account of:

• violation of KYC / AML Guidelines
• mis-selling of products,  or selling products unsuitable to clients,
• conflict of interest, 
• lack of robust risk management system & procedures leading to frauds
• lack of knowledge and 
• lack of clarity about products and frauds

RBI has also found out in the recent past that banks were involved in structuring transactions to aid tax evasion and fraudulant transfer of funds. It was observed that many of these transactions centered around WMS (Wealth Management Services) provided by banks as well as marketing of third party products.

 

Marketing & Distribution of Third Part Financial Products

RBI has clearly mentioned in the guidelines draft that, it has been observed that in some cases,

• banks did not have clear segregation of duties of marketing personnel from other branch functions
• bank employees were directly receiving incentives from third parties, such as insurance, mutual funds and other entities for seling their products.

These practices enable tendencies of mis-selling and distortion of staff incentive structure.

RBI has made clear that - "in case of a bank acting as distributor, the customer’s expectation from a bank in terms of the bank’s credibility is significantly different than that of any other agent of the product issuer. Thus banks are expected to take greater care while undertaking such services, including avoiding mis-selling."

As per the guidelines, mis-selling of products and services occurs when :

• products that are unsuitable to the client profile are sold to him, particularly through misrepresentation or by linking it with banks’ own products e.g., making purchase of insurance compulsory along with a car loan. 
• there is a lack of knowledge of the product being sold, and occurs when untrained staff sell products. 
• mis-selling may also arise from the provisions regarding payment of commissions and incentives which distort the selling structure.

Section 10(1)(b)(ii) of the BR Act, 1949 prohibits a bank from employing or continuing the employment of any person whose remuneration or part of the remuneration takes the form of commission or of a share in the profits of the bank, save as exempted in the Proviso thereto. Accordingly, payment of a portion of the commission earned on marketing and distribution of third party products by the bank to the staff would fall under the said prohibition.

Accordingly, undermentioned are a few excerpts from the conditions proposed by RBI in addition to the extant instructions: 

• Banks should disclose to the customers, details of all the commissions/other fees (in any form) received, if any, from the various mutual fund/insurance/other financial companies for marketing their products. This disclosure would be required even in cases where the bank is marketing products of only one mutual fund/ insurance company etc.
• Banks should disclose in the ‘Notes to Accounts’ to their Balance Sheet, the details of fees/remuneration received in respect of the marketing and distribution function undertaken by them.
• As mis-selling is a serious issue in terms of consumer protection, the bank should put in place a policy approved by its Board regarding marketing and distribution of third party financial products which should, inter alia specifically consider the issue of addressing mis-selling.
• The sales process should be transparent with full disclosure as to the details of the product. The selling should be need based and mapped to the customer profile.
• Products should be marketed only in branches having specified trained personnel for the purpose.
• The persons undertaking such marketing/distributions services, should not be entrusted with any other approval/transactional process at bank branches. There should be a clear segregation of functions between marketing and operational staff.
• There should be a Code of Conduct for the sales personnel who should adhere to the same.
• The fact that the bank is acting only as an agent should be clearly brought to the notice of the customer.
• Banks should set up SIDD (Seperately Identifiable Divisions or Departments), so that conflict of interest be handled; and seperating marketing / transactional / advisory divisions.

It may be ensured that there is no violation of Section 10(1) (ii) of the BR Act 1949 in payment of commissions/incentives as well as of Guidelines issued by the regulator of the third party issuer. No incentive (cash or non-cash) linked directly or indirectly to the income received from marketing and distribution function should be paid to the staff engaged in marketing/distribution services of third party products. The staff of the bank is also not permitted to receive any incentive (cash or non-cash) directly from the third party issuer. Banks must ensure that there is no violation of the above in the incentive structure to staff.

There should be no evasion of these regulations by accepting several amounts for lower values from the same client to avoid the stated threshold.

We have taken excerpts from the draft guidelines issued by RBI. The comprehensive document covers PMS (Portfolio Management Services), IAS (Investment Advisory Services), and much more.



What Options Does a Client Have...?

Cogent Advisory has always maintained the stance that "Let The Banks Do Banking, You Should Have a Private Family Wealth Management Firm, managing your funds".

Banks are also limited in respect of products and services, where by it has been observed that they predominantly sell insurance and mutual funds. Hence, this results in the biasedness in the way investments are being managed. 

When your approach a Pure Wealth Management & Advisory Firm, you have a better, diverse and advanced product and service choices; as these firms, in order to remain competitive, bring the best in class services & products to your desk. Moreover, fee based services remove the conflict of interest, with provider being able to meet its costs & client is saved from the risk of being sold higher commission based product. 

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Pointers On Real Estate Bill Passed By Cabinet.

Finally, much awaited bill finds an approval with the Cabinet. It is beter late than never, wil real estate customer woes being over for now. Atleast, the process has been sent in motion.

The Union Cabinet approved the bill to set up a regulator for the real estate sector with provisions for jail term for the developer for putting out misleading advertisements about projects.

Here are 10 things you need to know about the bill:

The Real Estate (Regulation and Development), Bill 2013, seeks to make it mandatory for developers to launch projects only after acquiring all the statutory clearances from relevant authorities.
It also has provisions under which all relevant clearances for real estate projects would have to be submitted to the regulator and also displayed on a website before starting the construction.
 

The proposed legislation has certain tough provisions to deter builders from putting out misleading advertisements related to the projects carrying photographs of actual site. Failure to do so for the first time would attract a penalty which may be up to 10 percent of the project cost and a repeat offence could land the developer in jail. Moreover, any false advertising implies that buyers will get full refund of the money deposited with interest.
 

The bill also seeks to make it mandatory for a developer to maintain a separate bank account for every project to ensure that the money raised for a particular project is not diverted elsewhere. According to a CNBC-TV18 report, developers have to keep aside 70 percent of the buyers’ funds in a separate bank account to ensure timely completion of projects. The buyers are entitled to full refund with interest in case of delay in projects.
 

The proposed legislation provides for clear definition of the ‘carpet area’ and would prohibit private developers from selling houses or flats on the basis of ambiguous ‘super area’.
 

Under the proposed new law, builders will be able to sell property only after getting all necessary clearances. Registrations of projects with the regulatory authority is a must. This means developers cannot offer any pre-launch sales without the regulatory approvals. Moreover the authority must approve or reject projects within 15 days.
 

Developers will also be barred from collecting any money from buyers before completing all necessary permits to start construction on the project.
 

Builders cannot take more than 10 percent of the advance from buyers without a written agreement.

The bill also seeks setting up of a real estate appellate tribunal for adjudicating disputes. The tribunal will be headed either by a sitting or a retired judge.

 
It also suggests setting up of a national advisory council to be headed by housing minister Ajay Maken to suggest ways to advise the regulator on crucial matters.

Now, much of the transparency will come into the system that was long due. 

We are following up and keeping track of developments. Stay connected for the updates.

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