January Newsletter - 2018

Estimated reading time: 6 minutes 15 seconds


Symptoms - We don't argue any findings if it supports our existing view, whereas we tend to disagree more if the findings don't support our view.

The entire chain of action follows: search, interpret, favor and recall, all in a way that confirms our pre-existing beliefs or hypothesis.

An example could be: FD's are safe and better than Debt Funds. If this is our belief, then any short term negative performance by the debt funds in a client portfolio can make the client nervous and may even stop further investments in debt funds.

Steps to correct the bias - seek information that challenges our prior beliefs.


A single premium life insurance is sometimes selected because of lower mortality charges and the benefit of a one-time payment. However, the premium paid and the sum assured chosen by the individual plays a crucial role in determining the taxation of the premium and the maturity proceeds.

If the premium paid is more than10% of the sum assured, under Section 80C, the payee gets partial tax benefit till 10% of the sum assured up to Rs.150,000 capped under Section 80C. Upon maturity of the policy, the total proceeds may also get taxed depending on the individual's total taxable income at the time of maturity, contrary to tax benefits under Section 10(10D). Also in such cases, TDS of 1% is applicable.

Single premium insurance products should be dealt with carefully as the premium may be high and whatever returns look possible, should then be adjusted for tax considerations if the premium is more than 10% of the minimum sum assured.


Government reduces interest rate on Small savings schemes

1. PPF Rates lowered to 7.6%, a 110-basis point fall from 8.7% in March 2016.

2. Sukanya Samriddhi Account will offer 8.1% from existing 8.3%.

3. Kisan Vikas Patra will yield 7.3% and mature in 11 months.

4. Rates on the National Savings Certificate Scheme has to been reduced to 7.3% from 7.5%

5. However, 5-year senior citizens savings scheme has been left unchanged at 8.3%.

The IT department released data that indicates only 3% of the 120 crore population filed returns. Of these, 2.01 crore individuals paid nil income tax, 9,690 paid tax of over Rs.1 crore. Only 1.7 percent of the total population which is just over 2 crore Indians paid income tax in the assessment year (AY) 2015-16.

SEBI permits BSE and NSE to launch commodity based derivatives trading platform.

SEBI has allowed the use of qualified institutions placement (QIP) and condition-based sale of shares held by promoters and promoter group in open market to help listed firms achieve a minimum public float of 25%. Promoter share sale cannot exceed 2% stake.

SEBI has approved the framework for listing of security receipts (SRs) issued by Asset Reconstruction Companies (ARCs)


It is not a medium of exchange, unlike normal currencies.

Its volatility is not typical of currencies with single day rise and fall of 20% plus.

The technology backing the Bitcoin is adaptable in other currencies and transactions.

They have no central bank backing and have not yet been regulated.

There are many cryptocurrencies and therefore the uniqueness of Bitcoin is not guaranteed.

Analysts and advisers who advise a small miniscule exposure to the coin are recommending without any basis and unknowingly creating demand which is what holders of the coin would want. Recommendations like this are beneficial to existing holders and not beneficial to those who follow the recommendations.

In the future, if central bankers don't legalize bitcoin transactions, high bitcoin value would mean nothing. That realization would make holders to exit and convert their holding in to something legal. That would result in a cascade fall of the Bitcoin price.

This lack of recognition will force people to deal in illegal transactions, which is not something any rational investor would want to be a part of.


The government has decided to make additional borrowing of Rs.50,000 crore over the budgeted expenditure for the remaining part of FY18 through issuance of dated securities with a maturity of 5 years and above. The government has said that the borrowing will not change the fiscal deficit target of 3.2% of GDP for the current fiscal. The government will trim down the T-Bills from present collections of Rs.86,203 crore to Rs.25,006 crore by March 2018.

GST Collections slipped for the second straight month in November to Rs.80,808 crore, from over Rs.83,000 crore in the previous month. The revenue collections in October were Rs.83,346 crore, down about 12,000 crore from the September figure of Rs.95,131 crore.

At its fifth bi-monthly monetary policy review of the fiscal earlier this month, the RBI kept its key lending rate unchanged at 6% for the third time in a row, citing concerns over the rising trajectory of inflation.

International ratings agency Fitch lowered the country's GDP growth projection for 2017-18 to 6.7% from 6.9%. CRISIL lowered its projection of India's economic growth in 2017-18 to 6.80% from 7%.

India's wholesale inflation (WPI) in November 2017 rose 3.93%, hitting an eight-month high, due to an upsurge in prices of onions, vegetables and fuel products, compared to 3.59% for October. Consumer price index (CPI) inflation in November rose to 4.88% from 3.58% reported for October.


In the latest development, the Reserve Bank of India (RBI) said gross non-performing assets in the system shot up to 10.2% as of the September quarter, primarily led by private sector lenders. RBI has also warned that the situation will only aggravate from there, "elevating" the systemic risks.

India's Lok Sabha approved a bill to hike cess on luxury vehicles from 15 per cent to 25 per cent with a view to enhance funds to compensate states for revenue loss following the rollout of GST.

Rising Steel consumption at 9-10% Y/Y and 25% decline in Steel exports from China has led to exports from India rising to double the size of imports. China's exports to South Korea which is its biggest market has seen a drop over 16% Y/Y to just over 3 million tonnes (mt) in the April-June quarter of 2017 while India's exports to the country surged by over 20%, albeit on a small base to 0.63mt.

The telecom department has urged the Finance Ministry to lower the goods & services tax (GST) for telecom services to 12% against the existing 18%.

India's domestic airline traffic continued to grow in double-digits in November as the number of passengers flown last month jumped almost 17% year-on-year to 10.5 million


The Bank of Japan kept monetary policy on hold at its final meeting of the year as yen weakness and the global recovery delivered a period of solid economic growth.

The US Federal Reserve raised interest rates by 25 bps to a range of 1.25-1.50%, and projected three more hikes in each of 2018 and 2019 before a long-run level of 2.80% is reached. The central bank revised its growth forecast for 2018 to 2.50%, up from the 2.10% forecast in September

The European Central Bank held its benchmark refinancing rate at 0%, and raised its inflation forecast for 2018 to 1.4% from 1.2% earlier, on higher oil and food prices.

US CPI rose 2.20% from a year earlier in November due to a jump in energy prices

The US Senate narrowly passed a Republican bill to overhaul the tax code in decades, moving one step closer to the first major legislative victory of the Trump administration and congressional Republicans. The House of Representatives had passed its own version of tax reform legislation last month, which contained significant differences from the Senate version. Republicans currently plan to convene a conference in the next few weeks to reconcile the House and the Senate versions.

China's exports grew by 12.3% Y/Y in November, a 8-month high, led by strong sale of electronics and hi-tech goods.



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