Friday, Mar 15 2024
Source/Contribution by : NJ Publications

“In the rapidly changing world order, India is going ahead as ‘Vishwa Mitra’. India has given hope to the world that we can decide on common goals and achieve them.” - PM Shri Narendra Modi. 

India’s rise to the 5th largest economy in the world, with a GDP of $3.73 trillion*, has gained attention all over the world. A report published by S&P states that India is set to become the 3rd largest economy of $7.3 trillion by 2030. This rise is driven by the resilience shown by the economy and the policy initiatives taken over the last decade. Despite the challenges of the pandemic and geopolitical conflicts, the Indian economy has shown its ability to handle the challenges appropriately and stay on track with the growth momentum. 

In the last year, India has displayed steady growth, making it the fastest-growing economy amongst G20 economies. With a current growth rate of 7.3%, 7.2% in FY23, and 9.1% in FY22, India has by far outperformed the global growth rate, which is struggling to grow at 2%**. This year, India has written its name in history by becoming the first country to soft land on the south pole of the moon, successfully launching Aditya L-1 to orbit around the sun, its G20 presidency, UPI users reaching 800 million, excellent performance at Asian Games, 2 Oscar awards, the fastest rollout of 5G in the world and more such achievements. These achievements are a testament to the bright future of our beloved country. Let’s dig deeper into the Indian growth story. 

The Post-Independence Story (1947-2014) 

India was ruled by the British for about 200 years until it finally got its independence in 1947. However, this resulted in India plummeting from being one of the wealthiest countries in the world to becoming a struggling economy. In 1700, India’s share in the global economy was 22.6%, which dropped to a mere 3.8% in 1952**. The period from 1952 to 1960 saw a growth rate of 3.9%. However, the Indian economy slumped in the 1960s due to the Sino-Indian war in 1962, the India-Pakistan war of 1965-66, and the drought of 1965. 

The 70s were marked by a severe devaluation of the Indian rupee by 57%. The late 70s and early 80s were tumultuous not just for India but for the world. In the 80s, the GDP growth rate was 5.7%**, driven by modest liberalisation and government spending. In 1990-91, the Iraq-Kuwait war and the collapse of the Soviet Union impacted trade and current account balances, leading to a Balance-of-Payments (BoP) crisis. To uplift India from the shackles of this crisis, the Indian economy was liberalised and globalised in 1991. 

The early 2000s were marked by a sustained upward economic trend. With global growth, the Indian economy too experienced expansion in capital inflows. However, the global financial crisis of 2008 led to the accumulation of bad debts in banks, reaching double-digit percentages. During this period, inflation remained persistent, and the annual depreciation rate of the Indian rupee averaged 5.9%, leading to a stagnation in economic growth**.

The Decade of Explosive Growth - 2014-2024

The year 2014 was a game-changer for India, for it was the year when the seeds of explosive growth had been sown. With the new government in power in India, it was a year of structural reforms which were highly effective in strengthening macroeconomic fundamentals. In the last decade, India has strengthened its transportation facility and education system, handled a pandemic efficiently, improved local infrastructure, worked towards affordable and wholesome health, helped entrepreneurs, provided basic amenities and improved social security.

This decade, India doubled the number of airports that were built in the first 67 years of independence. Three major railway corridors have also been set up to improve logistics efficiency and reduce costs. Since 2014, 7 IITs, 16 IIITs, 7IIMs, and 15 AIIMS have been set up among new colleges established in India. In STEM (Science, Technology, Engineering and Mathematics) courses, women constitute 43% of enrolment, one of the highest in the world. Under the Pradhan Mantri Awas Yojana, 2.5 crore houses have been constructed for the poor. Under the PM Jan Dhan Yojana, 51.4 crore accounts have been opened, and subscriptions for Atal Pension Yojana have reached 6.1 crore. Under Stand-Up India, 2.1 lakh loans have been sanctioned to aspiring entrepreneurs, out of which 84% were women entrepreneurs**. Now, let’s look at how India is expected to perform in the future. 

India in Amrit Kaal - A Futuristic Outlook

In 2047, India will finish 100 years of independence. The period from now until 2047 is known as the Amrit Kaal. This period is defined as a highly auspicious time associated with good luck, positivity, healthy growth, and high energy. The goal of Amrit Kaal is to build a holistically developed India which is technology-driven and knowledge-based, with modern infrastructure, strong public finances, and a solid financial sector. 

In the interim budget disclosed by Finance Minister Nirmala Sitharaman on 1st February 2024, it was announced that to make India ‘Viksit’ (Developed) by 2047, we need to focus on the upliftment of 4 major areas, i.e. ‘Garib’ (Poor), ‘Annadata’ (Farmers), ‘Mahilayen’ (Women), and ‘Yuva’ (youth). Moreover, seven priorities will be acting as ‘Saptarishi’ to guide Amrit Kaal's vision. These 7 priorities are inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power, and financial sector. Moreover, the country is expected to meet ‘Net Zero’ emissions by 2070, and the country is fully committed to attain all the UN Sustainable Development Goals. To promote tourism in the country, States will be encouraged and empowered to develop iconic tourist sites, hence attracting business and promoting local entrepreneurship. Moreover, long-term interest-free loans will be given to states to promote holistic development. 

The coming years in India are expected to exhibit robust growth. The resilience shown by our country during the tough period of Covid-19 is a testament to the strength and potential of our country. Despite facing unprecedented challenges, India demonstrated remarkable adaptability and innovation, leveraging technology and fostering a spirit of unity. The challenges now confronting the growth of India’s economy are managing this highly integrated global economy efficiently, handling the geopolitical, technological, fiscal, economic, and social issues, deploying Artificial Intelligence (AI), and ensuring that the workforce is placed appropriately. In the past, India has shown resilience and progress despite risks and uncertainties, and hopefully, through efficient and effective policy measures, it will continue to do so. India now embarks on its Amrit Kaal journey with confidence, trust, and unity to build a prosperous and ‘Atmanirbhar’ country.

 **(Source - The Indian Economy - A Review - Jan 2024),  *(Source - IMF, as in 2023) 

Thursday, Dec 21 2023
Source/Contribution by : NJ Publications

Over the course of time, certain things have proven to be universally true in different situations. With time, such happenings have taken the shape of universal laws that speaks of wisdom and experience. Such universal laws are true not just in general situations but also in the context of personal finance. As investors, we can be open to learning from these universal laws to better prepare and navigate our own investment journey. In this blog, we will delve into some of the universal laws and explore their relevance in the context of personal finance.

1. Murphy's Law: ‘Anything that can go wrong will go wrong.’

Murphy's Law is a stark reminder that unforeseen events can disrupt even the most meticulously crafted financial plans. Experienced investors recognize the importance of risk management and diversification. Establishing an emergency fund, securing insurance coverage, and adopting a resilient mindset are crucial components of navigating the unpredictable nature of life and markets.

2. Kidlin's Law: “If you write the problem down clearly, then the matter is half solved.”

Quite often, we are not clear what we need and want in life and when and where we plan to reach in our financial journey. This law lays importance on the need assessment - clearly defining your goals and financial objectives before you start investing. A proper financial plan can be a document where our financial goals can be clearly defined with specific dates, target amounts and the path to achieve the same can then be easily worked out.

3. Gilbert's Law: “The biggest problem at work is that none tells you what to do.”

The idea here is simple - take ownership in a world that is constantly evolving and changing. It is important that we develop our own understanding and knowledge as we learn to navigate our investment journey and not really depend on others to tell us what to do. The law also implies that we have to keep an eye out for changes happening around us and adapt our investment strategies in order to capitalize on emerging opportunities and navigate potential risks.

4. Wilson's Law: ‘You can't win if you don't play.’

This simple yet profound law encourages participation and taking action, even when faced with uncertainty or fear of failure. We can see this law in the context of long-term wealth creation by participating in the equities, especially in a market like India. To emerge successful, we must play the game of patience, discipline and give time for the power of compounding to work in our favour and help us win in the investment game. 

5. Falkland Law: 'When there is no need to make a decision, Don't make a decision.'

Not making a decision is also a decision. In the personal finance context, it is essential to avoid the market noise and short-term fluctuations and not be forced to make decisions based on the market’s herd behaviour. In the journey of building wealth, it is important that you do not change lanes too often and avoid unnecessary changes and decisions that are not in alignment with your long-term objectives and not logical or rational in nature. 

6. Newton's Law: “Every action has an equal and opposite reaction.”

A very popular law simply means that whatever you decide or say yes means you have said no to many other choices. Every financial decision carries a potentially long-term impact on our wealth building journey. A delayed investment, a lower amount of SIP, not growing your SIPs, investing in FDs instead of equities, spending on latest gadgets and so on, carries both positive and negative outcomes if you consider the opportunity costs involved in every such decision or financial behaviour.

7. Walson’s law: “Put information and intelligence first, and money will come rolling in.”

For investors, Walson’s law would mean that one has to keep growing knowledge and expertise and practice this repeatedly in the investment journey. The outcome of this practice, and behaviour will ultimately yield positive results in the wealth creation journey. 

8. Parkinson's Law: “Work expands so as to fill the time available for its completion.”

Parkinson's Law can be seen as a warning against lifestyle inflation, unless it is controlled. It is very often seen that our expenses rise to fill the rising disposable income with time. One needs to control this by regularly diverting a large portion of this rise in income to investments in a disciplined manner so that your increase in investments is higher than your increase in your spending.

9. Hofstadter's Law: “It always takes longer than you expect, even when you take this into account.”

Hofstadter's Law highlights the tendency for tasks to take longer than initially anticipated. In the context of personal finance, this is a reminder that achieving financial goals requires time, persistence and patience. In today’s world, expecting that your money will continue to grow at an unusually high rate for the foreseeable future is foolish. There is a need to be conservative, have a comfortable margin of safety in terms of your expectations - both time and returns, and plan accordingly to ensure that your goals are safe, and your plans have a high probability of success. 

10. Sturgeon's Law: “Ninety percent of everything is crap.”

Sturgeon's Law serves as a reminder to exercise judgement and discretion in the world of investments. Experienced investors understand that not all opportunities are created equal, and thorough due diligence is essential. By filtering through the noise and identifying the right investment opportunities, they can build a resilient and profitable portfolio. This law reinforces the importance of quality over quantity in the pursuit of financial success.

Conclusion

Learning and wisdom can be found anywhere, beyond just the finance discipline. As investors, learning from the wisdom of the greats and from other disciplines of knowledge can help us become better investors. In this context, the universal laws do offer us plenty to think about, introspect and get insights from. By incorporating these universal laws into our investment strategies, experienced investors can navigate the complexities of wealth management, hopefully as better investors.

Friday, Dec 01 2023
Source/Contribution by : NJ Publications

Investing should be a logical thing and rational thing. Quite often, long-term investing success is more closely linked to our behaviour and our decision-making framework than anything else. Over the years, this has played the most impactful role in the outcomes. Unfortunately, often emotions and biases play the spoil-sport and influence our decision-making. While emotions can be managed to a certain extent, the biases are more difficult to handle. We may think and believe that we are acting rationally but in reality, even our rational thoughts and decisions are unknowingly influenced by our biases. Thus, it becomes necessary to identify and understand these biases so that we can mitigate their impact on our investment behaviour and our rational decision-making ability. 

In this article, we will explore 10 such common personal biases that can impact our decision-making:

1. Illusion of causality: 

We have a general tendency to see patterns and connections where none exist, leading us to believe that one event caused another. For example, an investor may believe that past returns will continue to accrue in future because that is how it has been for the past few months. We unknowingly create the bias for or against based on patterns and connections that we create in our minds. 

2. Anchoring effect: 

The anchoring effect is the tendency to rely too heavily on the first piece of information we receive when making a decision. For example, an investor may come across good news on some investment opportunity and develop a preference for the same despite successive more important negative news. In many ways, we tend to create opinions or judgements based on our first impressions which becomes difficult to change later.

3. Narrative fallacy: 

We often fall for stories and narratives and often forget to see if they are supported by proper evidence. In the world of social media, these narratives often shape our opinions on everything, including our investments. Unsolicited ideas and money-making strategies are readily available at the click of a button. In such an age of information, we need to be careful in building and shaping our knowledge based on facts and evidence and not on unverified narratives.

4. Hindsight bias: 

The tendency to believe that we could have predicted an event after it has already happened. For example, an investor may exit a market after it has fallen, believing that they should have sold it sooner. Often, we tend to believe that our knowledge and judgement are good after an event has happened even though this may have been for any other reason. Unknowingly, we would become biased on the hindsight of an event happening.

5. Planning fallacy: 

We often do a lot of planning for things like buying a mobile or going on a long vacation. However, when it comes to investments, we tend to underestimate the amount of time and resources it will take to do it ourselves. With easy information available, we tend to jump to conclusions very fast and think investing is simple and easy. Unfortunately, it takes time and a few losses to acknowledge our mistakes. Investing needs proper planning, knowledge and expertise and lots of behavioural traits over time to be successful.

6. Loss aversion: 

Our bodies and minds have evolved to avoid pain, even the slightest ones. Thus, we tend to feel the pain of losing money more acutely than the pleasure of making money. This can lead investors to make irrational decisions, such as holding onto losing investments too long or selling winning investments too soon. Loss aversion is very common amongst investors and something to look out for to avoid making wrong decisions.

7. Herd instinct: 

Again, our minds have evolved to see safety in numbers. We tend to follow the crowd, even when it is not in our best interest. We feel that the majority is unlikely to be wrong and even if everyone is wrong, I will not be alone. We see this repeating often in how the market behaves during different boom and bust cycles and the surprising number of new investors falling for this mentality.

8. Confirmation bias: 

It is human nature to have the urge to be right and find ways to prove the same. We unknowingly seek out and interpret information in a way that confirms our existing beliefs. We risk ignoring and giving less importance to facts that counter our beliefs and tend to find comfort in what we already know. As investors, we should be open to ideas even if they are against our beliefs, challenge our understanding and accept that our notions and beliefs can be wrong.

9. Overconfidence bias: 

Often, new investors after initial success believe that their knowledge is adequate and they are smart enough to play the game. The tendency to overestimate our own knowledge and abilities is the overconfidence bias we have. A parallel can be drawn in the case of driving too, where almost 90% of people would believe that they are better than average drivers. With this bias, there is a risk that we make decisions prematurely or without adequate research trusting more in our own abilities. 

10. Familiarity bias: We tend to find comfort with what we know and there is a tendency to prefer things that are familiar to us. We tend to avoid unfamiliar or unchartered avenues. We can see this with the older generation who are generally risk-averse and prefer to invest in traditional avenues. With this bias, we may risk neglecting and not learning enough of the opportunities out there and staying stuck with sub-optimal choices in investing. 

How to mitigate the impact of personal biases on your investments:

Now that we know about the biases we can have in investing, the question is what to do next? Well, there are a number of things that investors can do to mitigate the impact of personal biases on their investments. The first and foremost is to educate ourselves about personal biases. The more we know about personal biases, the better equipped we will be to identify and mitigate their impact on our investment decisions. Being open, flexible and with a bit of introspection, we can overcome a lot of biases. 

Next is to create an investment plan and stick to it. An investment plan can help you to avoid making impulsive decisions based on your emotions or biases. As investors, we should focus on learning and keeping an open mind to ideas for a long journey towards financial well-being in life. We should be smart enough to avoid noise and filter information after judging and validating information from diverse sources. Lastly, it is recommended that we also get professional or expert advice. They can extend a holding hand in managing our emotions and our biases in our investment decisions. By understanding and mitigating the impact of personal biases, investors can make more informed and rational investment decisions.