Introduction :
Investors are likely to hear the terms inflation and gross domestic product (GDP) just about every day. They are often made to feel that these metrics must be studied as a surgeon would study a patient's chart prior to operating. However there are no absolute value which can be fixed for both the financial parameters as to what is ideal growth rate of GDP or Inflation. It is highly subjective depending upon the investor portfolio with respect to economy
What is Inflation ?
Inflation can mean either an increase in the money supply or an increase in price levels.Generally, when we hear about inflation, we are hearing about a rise in prices compared to some benchmark. For eg : In India WPI (Wholesale Price Index) is used as standard measurement of inflation in financial markets.
What is Gross domestic product ?
The gross domestic product (GDP) is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. It is often positively correlated with the standard of living, alternative measures to GDP for that purpose. It is important to keep in mind that the GDP figures as reported to investors are already adjusted for inflation. In other words, if the gross GDP was calculated to be 6% higher than the previous year, but inflation measured
2% over the same period, GDP growth would be reported as 4%, or the net growth over the period.
Relationship: Double Edged Sword :
The relationship between inflation and economic output (GDP) plays out like a double edged sword.
One side of sword :
For stock market investors, annual growth in the GDP is vital. If overall economic output is declining or merely holding steady, most companies will not be able to increase their profits, which is the primary driver of stock performance.
Second Side of Sword :
too much GDP growth is also dangerous, as it will most likely come with an increase in inflation, which erodes stock market gains by making our money less valuable.
Fact :Most economists today agree that 2.5-3.5% GDP growth per year is the most that our economy can safely maintain without causing negative side effects.
But where do these numbers come from?
For understanding this we have to also introduce the variable known as "Employment Rate".
Studies have shown that over the past 20 years, annual GDP growth over 2.5% has caused a 0.5% drop in unemployment for every percentage point over 2.5%. It sounds like the perfect way to kill two birds with one stone - increase overall growth while lowering the unemployment rate, right?
Unfortunately this isnt that easy because this positive relation starts to break when economy moves towards full employment rates.
Consequences of Full Employment :
Near full employment will cause two important things to happen:
1) Aggregate demand for goods and services will increase faster than supply, causing prices to rise.
2) Companies will have to raise wages as a result of the tight labor market. This increase usually is passed on to consumers in the form of higher prices as the company looks to maximize profits.
Key point: Companies will have to raise wages as a result of the tight labor market. This increase usually is passed on to consumers in the form of higher prices as the company looks to maximize profits.(it increases at increasing rate).
Analysis of Monthly Movement of SENSEX and Inflation rate for the year 2010 :
Observation from diagram : From the above two charts it can be observed that as the inflation decreases SENSEX rises upwards which might leads to increase in REAL INCOME of the investor.
So is Inflation a "bad thing" for any economy :
Answer is NO,The biggest reason behind this argument in favor of inflation is the case of wages. In a healthy economy, sometimes market forces will require that companies reduce real wages, or wages after inflation.In a theoretical world, a 2% wage increase during a year with 4% inflation has the same net effect to the worker as a 2% wage reduction in periods of zero inflation.But out in the real world, nominal (actual) wage cuts rarely occur because workers tend to refuse to accept wage cuts at any time. This is the primary reason that most economists today agree that a small amount of inflation, about 1-2% a year, is more beneficial than detrimental to the economy.
What do investors do ????
Fixed Income Investors :
Keeping a close eye on inflation is most important for fixed income investors, as future income streams must be discounted by inflation to determine how much value today' money will have in the future. Also Inflation rate can also important determinant for YTM in the Glitz Market.
Stock Market Investor :
For stock investors, inflation, whether real or anticipated, is what motivates us to take on the increased risk of investing in the stock market, in the hope of generating the highest real rates of return. Real returns are the returns on investment that are left standing after commissions, taxes, inflation and all other frictional costs are taken into account.
Further Conclusion : As long as inflation is moderate, the stock market provides the best chances for this compared to fixed income and cash.
My View : Other than Inflation and GDP there are many things which demand our attention as an investor however, it is valuable to re-expose ourselves to the underlying theories behind the numbers from time to time so that we can put our potential for investment returns into the proper perspective.:-)
Sources : www.Investopedia.com, Wikipedia, www.yahoo finance.com,www.tradingeconomics.com
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Wednesday, December 29, 2010
Sunday, December 26, 2010
RAGS to RICHES : LIONEL MESSI
Profile :
Full name : Luis Lionel Andrés Messi
Birthday : June 24, 1987 (Rosario, Argentina)
Nationality : Argentinian
Other nationality : Spanish
EU passport : Yes
Height : 169 cm
Weight : 67 kg
Club : FC Barcelona
Position : Forward
Birthday : June 24, 1987 (Rosario, Argentina)
Nationality : Argentinian
Other nationality : Spanish
EU passport : Yes
Height : 169 cm
Weight : 67 kg
Club : FC Barcelona
Position : Forward
Early Life:
Messi was born on 24 June 1987 at the Hospital Italiano Garibaldi in Rosario, Santa Fe, to parents Jorge Horacio Messi (born 1958), a factory worker, and Celia María Cuccittini, a part-time cleaner. His paternal family originates from the Italian city of Ancona, where his ancestor, Angelo Messi, emigrated to Argentina in 1883. He has two older brothers named Rodrigo and Matías as well as a sister named Maria Sol. At the age of five, Messi started playing football for Grandoli, a local club coached by his father Jorge. In 1995, Messi switched to Newell's Old Boys who were based in his home city Rosario. At the age of 11, he was diagnosed with a growth hormone deficiency.Primera División club River Plate showed interest in Messi's progress, but did not have enough money to pay for treatment for his condition as it cost $900 a month.
Turnaround :
Carles Rexach, the sporting director of FC Barcelona, had been made aware of his talent as Messi had relatives in Lleida, Catalonia, and Messi and his father were able to arrange a trial. Barcelona signed him after watching him play,offering to pay for the medical bills if he was willing to move to Spain. His family moved to Europe and he started in the club's youth teams.
Achivements :
FC Barcelona Awards :
- Spanish League (3): 2004–05, 2005–06, 2008–09
- Spanish Cup: (1) 2008–09
- Spanish Supercup (3): 2005, 2006, 2009
- UEFA Champions League (2): 2005–06, 2008–09
- UEFA Super Cup (1): 2009
- FIFA Club World Cup (1): 2009
International Awards
- FIFA U-20 World Cup: 2005
- Olympic Gold Medal: 2008
Individual Awards
- FIFA U-20 World Cup Top Scorer: 2005
- FIFA U-20 World Cup Player of the Tournament: 2005
- Copa América Young Player of the Tournament: 2007
- U-21 European Footballer of the Year: 2007
- Player of the Year of Argentina: 2005, 2007, 2009
- FIFPro Special Young Player of the Year: 2006–2007, 2007–2008
- FIFPro World Young Player of the Year: 2005–2006, 2006–2007, 2007–2008
- World Soccer Young Player of the Year: 2005–2006, 2006–2007, 2007–2008
- Premio Don Balón (Best Foreign Player in La Liga): 2006–2007, 2008–2009
- EFE Trophy (Best Ibero-American Player in La Liga): 2006–2007, 2008–2009
- FIFPro World XI: 2006–2007, 2007–2008, 2008–2009
- UEFA Team of the Year: 2007–2008, 2008–2009
- FIFA Team of the Year: 2008, 2009
- UEFA Champions League Top Scorer: 2008–2009
- Trofeo Alfredo Di Stéfano: 2008–2009
- UEFA Club Forward of the Year: 2008–2009
- UEFA Club Footballer of the Year: 2008–2009
- LFP Best Player: 2008–2009
- LFP Best Striker: 2008–2009
- Onze d'Or: 2009
- Ballon d'Or: 2009
- World Soccer Player of the Year: 2009
- FIFA Club World Cup Golden Ball: 2009
- Toyota Award: 2009
- FIFA World Player of the Year: 2009
- FIFPro World Player of the Year: 2008–09
Experts Quotes on Messi :
“I see Maradona every time he grabs the ball and accelerates. We must protect him. I’d personally put him in a drawer of my bedside table.”
Jose Mourinho
“The best way to stop Messi is when you play with 11 men and then you can double mark him, one player to stay on him and the other to help out. If it is 11 against 10 then you have almost no chance of stopping him.”
Karl-Heinz Rummenigge
“Nobody was so wonderful at 19 years, neither Pele nor Maradona.”
Ronaldinho
“Every time he plays, Leo Messi reminds me more of Maradona, both left-footed and short, Messi is the best player in the world, along with Kaká and Cristiano Ronaldo. For us it is not a surprise. Since he began to come and train with us and we knew we would go down this path. Someday I will explain that I was at the birth of one of the footballing greats: Leo Messi.”
Diego Maradona
“I have seen the player who will inherit my place in Argentine football and his name is Messi. Messi is a genius and he can become an even better player.”
“His potential is limitless and I think he’s got everything it takes to become Argentina’s greatest player.”
“Messi I think is like me, he is the best in the world along with Ronaldinho.”
Arsene Wenger
“He’s like a PlayStation”
Lessons :
Despite of suffering from growth hormone deficiency Lionel Messi always took it as an opportunity and not as his weakness, slowly and gradually made his short height and light weight as his strength by focusing on his skills rather than cribbing about his physique which has made him one of the Best Players of All times .
Sources : www.lionel-messi.co.uk (offical website), Wikipedia
Thursday, December 23, 2010
Indian Accounting Standards vis-a vis International Accounting Standards/International Financial Reporting Standards(IAS/IFRS)
International Accounting Standards
International Accounting Corresponding
Standards Nos. Title Indian GAAP
IAS 1 Presentation of Financial Statements AS-1
IAS 2 Inventories AS-2
IAS 7 Cashflow Statements AS-3
IAS 8 Accounting policies, changes in accounting AS-5
estimates and errors
IAS 10 Events after the Balance Sheet date AS-4
IAS 11 Construction Contracts AS-7
IAS 12 Income Taxes AS-22
IAS 16 Property, Plant and Equipment AS-10&6
IAS 17 Lease AS-19
IAS 18 Revenue AS-9
IAS 19 Employees Benefits AS-15
IAS 20 Government Grants AS-12
IAS 21 Accounting for Foreign Exchange AS-11
IAS 23 Borrowing Cost AS-16
IAS 24 Related Party Disclosures AS-18
IAS 26 Retirement Benefit Plans ---
IAS 27 Consolidation of Financials AS-21
IAS 28 Investment in associates AS-23
IAS 29 Financial Reporting on Hyper Inflationary
Economics ---
IAS 31 Interest in Joint Ventures AS-27
IAS 32 Financial Instruments : Presentation AS-31
IAS 33 EPS AS-20
IAS 34 Interim Financial Reporting AS-25
IAS 36 Impairment of Assets AS-28
IAS 37 Provisions, Contingent liabilties and
Contingent Assets AS-4
IAS 38 Intangible Assets AS-26
IAS 39 Financial Instruments : Recognition and
Measurement AS-30
IAS 40 Investment Property AS-13
IAS 41 Agriculture ---
International Financial Reporting Standards :
IFRS no. Title Corresponding Indian
GAAP
IFRS-1 First time adoptation of IFRS Not Relevant
IFRS-2 Share Based Payments -----
IFRS-3 Business Combination AS-14
IFRS-4 Insurance Contracts ----
IFRS-5 Non-current Assets held for sale AS-24
and discontinyed operations
IFRS-6 Exploration for and evaluation of mineral
resources ----
IFRS-7 Financial Instruments: disclosures AS-32
IFRS-8 Operating segments AS-17
IFRS-9 Financial Instruments: Recognition and AS-30
and measurement
Sources :
1) Accounting Standards (D.S.Rawat)
2) THE CHARTERED ACCOUNTANTS JOURNAL
International Accounting Corresponding
Standards Nos. Title Indian GAAP
IAS 1 Presentation of Financial Statements AS-1
IAS 2 Inventories AS-2
IAS 7 Cashflow Statements AS-3
IAS 8 Accounting policies, changes in accounting AS-5
estimates and errors
IAS 10 Events after the Balance Sheet date AS-4
IAS 11 Construction Contracts AS-7
IAS 12 Income Taxes AS-22
IAS 16 Property, Plant and Equipment AS-10&6
IAS 17 Lease AS-19
IAS 18 Revenue AS-9
IAS 19 Employees Benefits AS-15
IAS 20 Government Grants AS-12
IAS 21 Accounting for Foreign Exchange AS-11
IAS 23 Borrowing Cost AS-16
IAS 24 Related Party Disclosures AS-18
IAS 26 Retirement Benefit Plans ---
IAS 27 Consolidation of Financials AS-21
IAS 28 Investment in associates AS-23
IAS 29 Financial Reporting on Hyper Inflationary
Economics ---
IAS 31 Interest in Joint Ventures AS-27
IAS 32 Financial Instruments : Presentation AS-31
IAS 33 EPS AS-20
IAS 34 Interim Financial Reporting AS-25
IAS 36 Impairment of Assets AS-28
IAS 37 Provisions, Contingent liabilties and
Contingent Assets AS-4
IAS 38 Intangible Assets AS-26
IAS 39 Financial Instruments : Recognition and
Measurement AS-30
IAS 40 Investment Property AS-13
IAS 41 Agriculture ---
International Financial Reporting Standards :
IFRS no. Title Corresponding Indian
GAAP
IFRS-1 First time adoptation of IFRS Not Relevant
IFRS-2 Share Based Payments -----
IFRS-3 Business Combination AS-14
IFRS-4 Insurance Contracts ----
IFRS-5 Non-current Assets held for sale AS-24
and discontinyed operations
IFRS-6 Exploration for and evaluation of mineral
resources ----
IFRS-7 Financial Instruments: disclosures AS-32
IFRS-8 Operating segments AS-17
IFRS-9 Financial Instruments: Recognition and AS-30
and measurement
Sources :
1) Accounting Standards (D.S.Rawat)
2) THE CHARTERED ACCOUNTANTS JOURNAL
Other Clarification relating to Covergences of IFRS
Clarifications :
1) It is solely upon company whether to provide comparative figures of previous year (2010-11) in accordance with old Accounting Standards or to go for IFRS.
2) Companies having transition later then 01st April,2011 i.e;(Phase 2,Phase 3) companies can go for voluntary convergance on 01st April,2011
3) For Classification as Phase 1 effective date for satisfying the conditions will be 31st March,2009.
4) All Companies are covered on Stand alone basis ( No changes in classification even if one is associate, holding, subsidiary of another company).
5) However Reclassification can take place in case of Consolidation of Financial Statements contrary to what is written in above point.
6) Calculation of Networth for Eligibility/Applicability :
6a) For Companies other than Insurance Companies, Banks , NBFC's :
Date of Determination of Networth :31st March,2009
Formula : Networth = ShareCapital + Reserves -(Revaluation Reserves + Miscellaneous Expenditure+ P& LA/c. (Dr.balance).
*Companies incorporated after 31st March 2009 then for them date of determination of Networth will be first balance sheet date
6b) For Insurance Companies , Banks and NBFC's date of determination of Networth will be 31st March 2011 rest will be same as for other companies
7) Accounting Standards applicable to India will be converged IFRS and it is possible that which may not be consistent with actual IFRS so Accounting Standards to be followed will be converged and not actual IFRS.
1) It is solely upon company whether to provide comparative figures of previous year (2010-11) in accordance with old Accounting Standards or to go for IFRS.
2) Companies having transition later then 01st April,2011 i.e;(Phase 2,Phase 3) companies can go for voluntary convergance on 01st April,2011
3) For Classification as Phase 1 effective date for satisfying the conditions will be 31st March,2009.
4) All Companies are covered on Stand alone basis ( No changes in classification even if one is associate, holding, subsidiary of another company).
5) However Reclassification can take place in case of Consolidation of Financial Statements contrary to what is written in above point.
6) Calculation of Networth for Eligibility/Applicability :
6a) For Companies other than Insurance Companies, Banks , NBFC's :
Date of Determination of Networth :31st March,2009
Formula : Networth = ShareCapital + Reserves -(Revaluation Reserves + Miscellaneous Expenditure+ P& LA/c. (Dr.balance).
*Companies incorporated after 31st March 2009 then for them date of determination of Networth will be first balance sheet date
6b) For Insurance Companies , Banks and NBFC's date of determination of Networth will be 31st March 2011 rest will be same as for other companies
7) Accounting Standards applicable to India will be converged IFRS and it is possible that which may not be consistent with actual IFRS so Accounting Standards to be followed will be converged and not actual IFRS.
India's Roadmap to Converge with the IFRS (For Insurance, Banking & NBFC'S Companies)
Insurance Companies : For all the Insurance companies date of transition : 01st April,2012.
Banking Companies :
1) Scheduled Commercial Banks, Urban Co-operative Banks having Networth in excess of Rs.300crs date of transition will be 01st April, 2013.
2) Scheduled Commercial Banks, Urban Co-operative Banks having Networth in excess of Rs.200crs but not in excess of Rs.300crs date of transition will be 01st April, 2014.
3)) Scheduled Commercial Banks, Urban Co-operative Banks having Networth not exceeding Rs.200crs and all the Regional Rural Banks will be covered under second set of Accounting Standards and there will be no convergence.
Non Banking Financial Institutions (NBFC's)
1) Companies which are part of NIFTY 50/SENSEX 30 and companies whether listed or not having Networth in excess of Rs.1000crs for them Date of Transition : 1st April,2013.
2) All listed and unlisted NBFC's which do not fall in the above category and which have Networth in excess of 500crs for them Date of Transition : 1st April,2014.
3) Unlisted NBFC's having net worth of Rs.500 crores or less will be exempt from convergence and will be covered in second set of Accounting Standards.
Other Notes : ICAI will issueand submit the converged Indian Standards with IFRS to NACAS (National Advisory Committee on Accounting Standards) by 30th June, 2010 for subsequent notification by the Ministry Corporate Affairs.
Banking Companies :
1) Scheduled Commercial Banks, Urban Co-operative Banks having Networth in excess of Rs.300crs date of transition will be 01st April, 2013.
2) Scheduled Commercial Banks, Urban Co-operative Banks having Networth in excess of Rs.200crs but not in excess of Rs.300crs date of transition will be 01st April, 2014.
3)) Scheduled Commercial Banks, Urban Co-operative Banks having Networth not exceeding Rs.200crs and all the Regional Rural Banks will be covered under second set of Accounting Standards and there will be no convergence.
Non Banking Financial Institutions (NBFC's)
1) Companies which are part of NIFTY 50/SENSEX 30 and companies whether listed or not having Networth in excess of Rs.1000crs for them Date of Transition : 1st April,2013.
2) All listed and unlisted NBFC's which do not fall in the above category and which have Networth in excess of 500crs for them Date of Transition : 1st April,2014.
3) Unlisted NBFC's having net worth of Rs.500 crores or less will be exempt from convergence and will be covered in second set of Accounting Standards.
Other Notes : ICAI will issueand submit the converged Indian Standards with IFRS to NACAS (National Advisory Committee on Accounting Standards) by 30th June, 2010 for subsequent notification by the Ministry Corporate Affairs.
Wednesday, December 22, 2010
India's Roadmap to Converge with the IFRS (For Companies other than Insurance, Banking & NBFC'S)
Background :
India's Roadmap to converge will be as announced by Ministry of Corporate Affairs (MCA),Government of India. Convergence will be in Stages as per this Roadmap. The Core Group, constituted by the Ministry of Corporate Affairs in the meeting held on 11th January,2011 agreed that there will be two set of Accounting Standards under sec 211(3C) of the Companies Act,1956.
Sets of Accounting Standards :
1) First set would compromise of Indian Accounting Standards which are to be converged with the IFRS which shall be applicable to specified companies.
2) Second set would compromise of the existing Indian Accounting Standards that would be applicable to other companies including Small and Medium Companies (SMCs).
Conditions for Specified Companies and date of transition from GAAP to IFRS :
First set of Accounting Standards will be applied in Phases which are as follows :
Phase 1 :These are companies which are part of NIFTY 50/SENSEX or are listed in overseas stock exhange or companies irrespective of being listed or not have Net Worth in excess of 1000crores.
Date of Transition :01st April ,2011.
Phase 2 : These are Companies whether listed or not, have a Net Worth exceeding Rs.500 Crores but less than Rs.1000 crores.
Date of Transition : 01st April, 2013.
Phase 3 : Listed Companies having Net Worth of Rs.500 Crores or less.
Date of Transition : 01st April, 2014.
Note :Other than the above companies that can be Unlisted Companies having Net worth of Rs.500 Crores or less or companies classifies as SMC's will be classified in Second Set of Accounting Standards and presently exempted from convergence.
India's Roadmap to converge will be as announced by Ministry of Corporate Affairs (MCA),Government of India. Convergence will be in Stages as per this Roadmap. The Core Group, constituted by the Ministry of Corporate Affairs in the meeting held on 11th January,2011 agreed that there will be two set of Accounting Standards under sec 211(3C) of the Companies Act,1956.
Sets of Accounting Standards :
1) First set would compromise of Indian Accounting Standards which are to be converged with the IFRS which shall be applicable to specified companies.
2) Second set would compromise of the existing Indian Accounting Standards that would be applicable to other companies including Small and Medium Companies (SMCs).
Conditions for Specified Companies and date of transition from GAAP to IFRS :
First set of Accounting Standards will be applied in Phases which are as follows :
Phase 1 :These are companies which are part of NIFTY 50/SENSEX or are listed in overseas stock exhange or companies irrespective of being listed or not have Net Worth in excess of 1000crores.
Date of Transition :01st April ,2011.
Phase 2 : These are Companies whether listed or not, have a Net Worth exceeding Rs.500 Crores but less than Rs.1000 crores.
Date of Transition : 01st April, 2013.
Phase 3 : Listed Companies having Net Worth of Rs.500 Crores or less.
Date of Transition : 01st April, 2014.
Note :Other than the above companies that can be Unlisted Companies having Net worth of Rs.500 Crores or less or companies classifies as SMC's will be classified in Second Set of Accounting Standards and presently exempted from convergence.
International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS)
Introduction :
IASB ( International Accounting Standard Board ) has so far issued 41 International Accounting Standards out of which large number being revised , 12 being superseded and deleted. IAS are now classified as IFRS and already 9 IFRS has been issued so far.
Background :
IAS/IFRS were formed on 6th June,2002 when European Council of Ministers decided that all European Union (EU) companies listed on regulated market to prepare accounts in accordance with IAS/IFRS w.e.f 01/01/2005.
Current Scenario :
Now more than 100 countries follows IFRS/IAS.
Today Accounting world feels that IAS/IFRS should be common language for accounting since drafting of these standards is done at International level and considering global economy.
IASB ( International Accounting Standard Board ) has so far issued 41 International Accounting Standards out of which large number being revised , 12 being superseded and deleted. IAS are now classified as IFRS and already 9 IFRS has been issued so far.
Background :
IAS/IFRS were formed on 6th June,2002 when European Council of Ministers decided that all European Union (EU) companies listed on regulated market to prepare accounts in accordance with IAS/IFRS w.e.f 01/01/2005.
Current Scenario :
Now more than 100 countries follows IFRS/IAS.
Today Accounting world feels that IAS/IFRS should be common language for accounting since drafting of these standards is done at International level and considering global economy.
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