The year 2014, has been an unprecedented year for India in terms of election results. In the last quarter of the year, here are some key facts about India’s economy.
1. India ranks 10th in terms of nominal GDP
India’s nominal GDP has been stuck in the USD 1.8 – 1.9 trillion range for the last three years, and is expected to cross the USD 2-trillion mark this fiscal, according to a Nomura report. Nomura expects nominal GDP to reach nearly USD 3 trillion by FY17.
In 2014, South Africa came to be known as the ‘safe haven’ for investors among the Emerging Markets. A comparison of the BRICS nations with developed nations on parameters of corporate governance, as reported in the World Economic Forum Global Competitiveness Report 2013-14, shows us why.
Good corporate governance and ethical practices by companies are considered essential for well functioning capital markets all over the world. Ethical practices, transparency in dealings, better investor protection and efficient boards boost investor confidence and lead to capital inflows in markets.
Ethical Behavior of Firms
Ethical behavior is assessed by company policies on bribery, kickbacks, protection money, facilitation payments, gifts, fraud, money laundering, and political and charitable contributions. Management systems and procedures outlining frameworks for risk assessment, sanctions, whistle-blowing, continuous internal self-review and external reporting also fall under the purview of ethical behavior.
In 2013, South Africa ranked at No37 on ethical behavior, ahead of other BRICS nations, with China at a distant 54th rank. India & Brazil ranked 86th and 87th and Russia ranked the lowest among BRICS nations on this parameter.
Strength of Auditing and Reporting Standards
Fair practices and transparency in dealings are critical to attracting foreign investments. The use of auditing and accounting practices ensure transparency against fraud and mismanagement and so are particularly important for investors to invest in foreign markets. Read more
In a verdict yesterday, the Delhi High Court allowed the Comptroller and Auditor General (CAG) of India to audit the accounts of private telecom companies under the Telecom Regulatory Authority of India (TRAI) Act.
This his kind of ruling was unthinkable even a few years back as CAG was and is still largely seen as an auditor of companies owned by the government.
As natural resources such as spectrum, gas/oil fields, coal, etc cannot be easily priced, the government has a big stake in these sectors and many of these companies that are involved in the production sharing of natural resources or profit sharing from natural resources enter into a public-private partnership (PPP) with the Government of India, so it appears logical that industries and sectors that deal with precious natural resources come under the ambit of CAG.
CAG doing audit of such private companies will have the several ramifications on the overall dynamics of the industry.
The median salary of Project Management Professionals has been found to vary with a number of key demographic factors, as per a ‘2013 Salary Survey’ report published by Project Management Institute, PMI, US. These include factors such as:
Country of employment
Number of years experience in project management
Position / Role
Average size of projects managed, including average project budget and average project team size
We present the comparison of salary information for 10 countries from the PMI report.
Country of Employment
The median salary for project management professionals vary widely from country to country. The country with the highest median salary ($134,658 USD) is Australia, whereas India and China are amongst the countries with the lower range of median salary (around $27,000 USD).
Within the various levels of project managers, salary appears to increase with added responsibility as a person proceeds from being a Project Manager, to a Program Manager, to Portfolio Manager, to the Director of a Project Management Office. There are some exceptions to this order though. In Germany the salary of Director of PMO is less than the salary of Portfolio Manager. The differential salary increase between different levels appears to be low in Japan, China and India.
Number of Years Experience in Project Management
The number of years a person has worked within the project management profession has a direct positive correlation with the salary. Again the difference in median salary varies by country. A dramatic increase is seen in Nigeria. The median salary ranges from $19,231 (USD) for those just starting out in the project management field to $61,538 (USD) for those who have been in the field for 10 -15 years. This represents an increase of nearly 230% from low-to-high experience in the field. The difference in median salary is not as striking in China.
Project Size (Average No of Team Members and Project Budget)
The size of projects managed, in terms of average number of team members and average project budget, also appears to have a positive correlation with annual salary.
In Nigeria, those managing projects with budgets of $10 million or more earn 96% more than those with projects under $100,000. In Japan and India the figure is around 50% more. In Japan, China and India those managing projects with larger teams (20 or more people) have a median salary that is 30 – 34% higher than those managing teams of 1 to 4 people.
The detailed report gives the salary information of Project Management Professionals for 33 countries.
I thank Mukund Sathe for sharing the ‘2013 PMI Salary Survey Report’.
Two major events scheduled on the 18th of December, were seen as deciding factors for the stock market movement in India by the end of 2013.
First was the announcement of monetary policy by the Reserve Bank of India (RBI) governor. Raghuram Rajan beat the market expectations of a hike in interest rates and surprised the markets pleasantly with no changes to the current monetary policy. RBI kept the repo rate unchanged at 7.75 % , the reverse repo at 6.75%, the cash reserve ratio at 4% and the marginal standing facility and the bank rate at 8.75%. Markets reacted favorably to the announcement.
Later on the same day, US Federal Reserve Chairman Ben Bernanke initiated pullback from Quantitative Easing (QE) before the end of his term in 2014, with Janet Yellen taking over as the Chairperson of Federal Reserve. As the size of the taper, $10 bn was in line with what the market had expected back in September, 2013, the announcement saw the US markets shooting up.
Notwithstanding the fact that trading foreign exchange on margin carries a high level of risk, the world’s largest market with 24-hour market action is the currency trading market.
There are more than 190 countries in the world with currencies that can be traded, of course, subject to government restrictions. The value of daily foreign exchange trading exceeds the value of annual international trade in goods and services by more than one hundred times.
The cumulative share in daily currency trading of the top ten currencies is about 180 percent and the rest of the currencies in the world have a share of 20 percent. (Since two currencies are involved in each transaction, the sum of the percentage shares of individual currencies totals 200% instead of 100%.)
As per reports of The Bank for International Settlements, which is an international organization of central banks, these are the top ten traded currencies of the world in 2013.
For an investor, the pain of selling a stock at a loss far exceeds the pleasure of selling the stock at an equal amount of gain.
Strange but true!
Such behavioral aspects of investing and many more are brought out in the study of behavioral finance, that was introduced in the late 1980s, owing to anomalies in stock price prediction by the two main existing theories of academic finance, i.e. Modern Portfolio Theory’ and ‘Efficient Market Hypothesis’.
According to the ‘Efficient Market Theory’, put forth by Eugene Fama, financial markets are believed to be efficient and investors are understood to make rational decisions. Further, market participants are supposed to be sophisticated, informed and known to act only on available information. Since market participants are believed to have equal access to information, it is implied that stock prices always reflect the best information about fundamental values of the stocks. According to the efficient market theory and Capital Asset Pricing Model (CAPM) the price of a stock is the Present Value (PV) of all the entire future earnings of the company i.e. the future dividend paid by the company.
The ‘Modern Portfolio Theory’ pioneered by Harry Markowitz suggested that an investor can maximise returns by holding a diversified portfolio of assets with different levels of risk.
However stock prices were found to exhibit more volatility than efficient market hypothesis could explain. Read more
The announcement of Monetary policy is awaited by businesses and investors alike, who are eager to know the impact of the change in policy on their savings or on their business. Here we look at how monetary policy impacts the economy.The objective of Monetary policy is to control the supply of money to boost economic growth while keeping inflation within acceptable limit.
Some tools of monetary policy that are used by the central banks are:
Lowering of short-term Interest Rates: This is the first tool used by the central banks around the world. When interest rates are lowered, it becomes cheaper to borrow money and less lucrative to save. This brings about a decline in savings, individuals and corporations are encouraged to spend; more money is borrowed, and more money is spent, thus increasing the overall economic activity.
Open Market Operations: Under OMO, the central bank buys bonds (from banks or general public) in the open market. By exchanging bonds for cash, the central bank increases money supply in the economy. Due to increase in the supply of money relative to demand, money can be borrowed at lower interest rates. This means that the short term interest rate for borrowing decreases. Conversely, if the central bank sells bonds, it decreases the money supply, drains liquidity and increases short term rates. Different countries have different ways of conducting OMOs. In India, effective instruments for OMOs are Liquidity Adjustment Facility (LAF) and Market Stabilization Scheme (MSS). Repo and Reverse Repo rate constitute the LAF system. Securities purchased and sold in OMOs are dated securities, T bills.
Reserve Requirement: The central bank has the ability to adjust banks’ reserve requirements, which determines the level of reserves a bank must hold in comparison to specified deposit liabilities. By adjusting the reserve ratios, the central bank can increase or decrease the amount of money that banks can lend.
Quantitative Easing: When interest rates are near zero but still the economy remains stalled, then central banks start supplying money from their reserves to the financial institutions by purchasing assets. The central bank purchases assets (government securities or other securities from the market) by spending the money it has created. Through QE, the central bank increases the quantity of money supply and that results in increased spending and in increased consumption, which increases the demand for goods and services, fosters job creation and, ultimately, creates economic vitality. Quantitative easing is generally used a last resort by policy makers. Though both QE and OMO involve purchase of assets, but QE involves purchase of longer duration assets, and mortgage backed securities.