Impact of CRR on the banking Sector

CRR (Cash Reserve Ratio) is the amount of money every bank has to deposit to the RBI (Central bank). It affects the banks operating margin in macro level.

Now Question arises how?, The answer is very simple. It is now around 6%. This means if a bank has Rs. 1 crore as total sum of deposits with the bank then they have to keep 6 lakhs with RBI as a reserve. Basically CRR is necessary to have control over the money freely available that is control Liquidity.

In India hardly very few people are aware that more liquidity leads to more inflation because if you have money you often afford to spend it which means more demand which in-turn leads to more price and hence inflation. By raising the CRR the banks has to keep more money from their Portfolio with RBI and help to control liquidity and there by inflation.

CRR plays a vital role on the stock value of banks and there exists a negative correlation between them.

IMPACT OF CRR ON STOCK MARKETS

A Hike in CRR leading to rising interest rates with several other implications:

• It create the bearish impact on economy ; this effectively means that investment activity and production of goods and services, gets adversely effected
• Since some investors tend to take risk and invest in the stock markets, higher interest rates increase the expectation of returns from the stock markets; this has the impact of lowering the current stock prices.
• An overall decline in stock prices has a cascading effect as risky positions are unwound (on account of meeting margin requirements), leading to still lower stock prices

So, for a short term, higher interest rates should negatively impact stock market sentiment. For a long term, however the expectations of returns from the stock markets remain unchanged.

It's difficult to predict that how the stock markets will move; or till what extent the markets will move.

CRR hike has the potential to significantly make a dent in equity markets. The risk involved in such cases is that the RBI is likely to end the growth party in India. The RBI move might result in lower PE for the market.

In Indian equity markets there are three levels of macro risk; a high P/E, a relatively overvalued rupee and interest rates that have stayed relatively low considering the level of economic growth, and we associate these things with growth. The P/E multiples are high because growth is strong, the rupee has been firm because strong growth has attracted capital and that capital has helped keep interest rates low. With CRR hike RBI is about to end the growth party and if growth begins to slow down then you are likely to see a lower P/E, a low rupee and a potentially higher interest rates.

Source: Google

Is Gold is really a good Option to invest!!!!!!

There has been a lot of debate over the years as to whether or not gold is worth investing your money in. Some make the claim that it makes an excellent hedge against inflation; others might say that you can use it as a quick fix for some extra cash. And then there are some that invest in it when the economy is bad because they feel if everything crashes, at least their gold will still carry some value.

Most of the people look at the price of gold per troy ounce in a similar way they consider the stock market. It is very difficult to determine what causes the fluctuations by just looking at the investment vehicles. The gold prices are related to few core factors in reality. These factors can be complex system that can be very confusing even though they look simple on the surface. Here we discuss various factors that cause gold price inflation. The gold and prices also fluctuates due to many reasons like currency inflation, dynamics which causes increase in demand and the role of central banks.

In the last couple of years there was the time when Sensex touch 21000 mark and then it collapsed like the castle of card. At that movement all the investment bankers, media, top notch companies were applauding about the Sensex. But when it collapsed where these people gone, all the calculations of these high profile people went wrong. Now every one give emphasis on investing in Yellow Metal i.e. GOLD.

But question arises that “IS GOLD IS A GOOD OPTION TO INVEST”

As we see the past trend of gold prices Between 1970 to 1980 it was started from very nominal amount and goes till $ 400. Moving to the next decade it was gone up like a bull but within the couple of years it fell down and revolved around the 400 mark. Same trend we can seen in the next decade too but when we move our eyes towards the new millennium to 2010 it has shown the drastic change in its prices it started from $ 300 to $ 1400 i.e. 450 % increase. Shocking

Now as an investor I understand the value of taking risk but my bolg is for those people who blindly trust on the big whales or the media and later repent.

Thanks for spending your valuable time. Your suggestions are welcome.

Life to understand

Life teaches us lesson in various forms it is up to you, how you take those lessons. Some take happily and some in the bad mood. Those who take happily are the people who grow in there life’s and those who take in the bad mood they just become invisible for the society.

There are lots of pattern in the society, if it is good for same one then it is definitely bad for another and you never know that how its effects that (another) person.

People take decisions and they think that the time will heal the problems which will occur while implementing that decision but I don’t think it works. It is like a bad investment cycle process in which you had harvested your portfolio but because of the market crash it is ruined.

A person can become big by doing hard work or by acting smart with the society. But the true fact is that hard work reflects & positively reflects than the smart work. Till this moment of time I rely on this theory only, as I don’t have enough experience to make a judgement call on the above said lines.

But when I get the perfect answer I definitely share with the readers of this blog.

Your suggestions are welcomed.

A Quite Sky AKASH (LUI)

As this is the last day of this year and decade too, so today I decide to share the up and downs of my most touching and memorable decade. This decade start with the naughty things in my life and i clearly remember this decade as this is the most productive decade of my life and I learned allot as starting from my senior classes with two major set backs in the family then graduation, marriage of my two brothers and then PG and finally job. This decade give me allot in my life all the memories new friends and the success which are still continuing.

This decade start with my fathers’ accident twice in two years on same date same month the only difference is the Year i.e. 2002 and 2003. But we (Family) are happy that now the things are good and my father is also good and recovered.

As the millennium end and the New Year start I had taken one of the very imp decisions of my life i.e. choosing the stream that in which I had to make my career. There is one funny incident that I had taken Math as an optional for one day and next day I go to school and changed the same. The last two years of my school was full of rocking, enjoyed allot studied allot and make the life long friends like Paras, Amit, Som, Ankit, Himanshu .

After my school my big brother postponed his honey moon by one day so that i could get admission in a good collage but not in KOTA University. There I made more friends and now I was little bit serious towards life but also miss my home too. But here I find friends like Akhilesh, Shushil, Rohit, Devesh, Sandeep, Prateek Shah, Prateek Jain, Radhika, Jaspreet, Anika, Chintan,Imran and many more. In my grad days my life had experienced various up’s and down in relations. Here also I studied a lot and got good collage for my PG.

The most adventurous days of my life in which I learned allot and showed my talent. I also saw that how much potential is available in the market. But touch wood I got the best group of my PG collage (PROTON Business school) Ajay, Sahil, Akhil, Varun. Jigna, Mandeep, Bharat, Anishka, Amit,Vikal, Pallavi, Shruti, Ros, Pooja. They all give me love care and support when required. I spent the best time with all of them. We also visited Germany and spent the life time experience there with them. IN my PG I was chosen as the contingent leader in one of the national level competition and won the RS 50000 as the first prize. In this competition I had done each and every thing related to principals of management. During my PG I also suffered from the back pain and in this my friend Ruchi helped me allot. In PG I had realised that always trust oneself as “no one says “trust me”, it is you who trust the and when they break it you find faults in there character. ’ In my PG my sister Shruti Di also talked allot about me and support me whn ever I was in pian. I always miss the ajay and varun home There mother father and entire family, They loved me allot.

In PG I got my first job in SNL Financials as a financial Analyst and learned allot about the corporate culture, new version of accounts and most importantly EXCEL. Here I met Parth, Krutesh, Varun, Rahul sir, Kamal, Jaydeep, Naresh, Phani, Vipul. During my job period I also got my first surgery of spin and that was successful.

Now its has been 8 months and 12 days of my job i.e. on 31/12/2010 and I am thankful to god to give me allot in this decade.

I always wish that in the coming decade my all friends will get success and peace of mind.

AMIN