Monday, 11 May 2015

How you should invest your retirement corpus (ET)

How you should invest your retirement corpus

Sangeetha Rathod will retire in a few months. She has sought opinion about how best to invest her retirement corpus and got conflicting advice. While some have told her to not take risks and simply deposit her retirement proceeds in a bank account, others have warned her against inflation and recommended aggressive investments to grow the corpus.

Retirement entails a change in earning, spending and saving habits. In the earning years, if the primary income was from salary, in retirement, the primary income comes from investments. Sangeeta needs an income that will cover her expenses comfortably in retirement. In the earning years, if much of her spending was on basic upkeep of the household, in retirement she may find that the amount she spends on travel and other activities going up. In the earning years, if she was able to save quite a bit of her income, in the retired years she will find her savings dropping.

Sangeeta should first calculate how much money she will need regularly. That amount will have to be kept in a monthly income plan, bank deposit, or any such safe investment that would generate the income as required. She should be aware that her expenses may go up over the years due to inflation. Therefore, she will need a higher principal amount to be able to generate a higher income as time goes by. She will need one part of her corpus to grow in value, and will therefore need equity.

Equity investments are risky in the short term. If the markets fall in the year of her investment, it may take a long time to recover. Therefore, Sangeeta should keep in equity only that portion of her corpus that she does not need to access immediately, or draw income out of. As she finds the value appreciating, she can transfer it to her income-yielding investments. If she invests 30% in equity and 70% in income yielding investments, she should review periodically and move her gains or fund her losses, to ensure that she does not exceed that 30% limit in equity.

A good asset allocation will help Sangeeta meet her retirement goals well. If she finds the initial years comfortable with the income she earns, she should use that period to invest the corpus to grow well, so she can use it in the future when inflation begins to hit her.

Preparing for global financial turbulence (Livemint)

India should allow the rupee to depreciate and focus on controlling inflation

Illustration: Shyamal Banerjee/Mint

Financial markets do not follow the neat patterns of the calendar. Yet, the turbulent events of the first week of May bring back memories of how traders broke into a cold sweat in the midst of a hot summer almost exactly two years ago.

The US Federal Reserve had first indicated in May 2013 that it would soon begin to withdraw its extraordinary monetary stimulus, also known as quantitative easing. India had to face an avalanche of selling that hit the most fragile emerging market economies. Quantitative easing has ended. The discussion right now is about when the US will begin to increase interest rates. The Indian financial markets have already been rattled. The BSE Sensex has fallen to its lowest level in six months. The Indian rupee touched its lowest level against the dollar in 20 months.

There are undoubtedly several domestic factors that have also cast a long shadow of doubt over the financial markets. The insipid quarterly results are one example. But it is also true that global factors are at play. Indian equity prices have traditionally been negatively correlated with US bond yields—and these have begun to climb.

How well is India placed to deal with a new round of global turbulence? It is well known that India is now better placed than it was two years ago in terms of the three standard measures of economic stability: inflation, the fiscal deficit and the current account gap. Indian policymakers across two governments deserve credit for learning the right lessons from the manic weeks of 2013.

Take a look at some numbers. The Reserve Bank of India (RBI) said on Friday that its foreign exchange reserves topped the $350 billion mark in the week ended 1 May. That is nearly $56 billion more than what it had in the beginning of May 2013. And more than $76 billion over what it had immediately after the run on the rupee that year. And the quarterly current account deficit has fallen from $21.8 billion in April-June 2013 to $8.39 billion in October-December 2014 (the latest quarter for which data is available).

What this means is that India is in a far better position to fund its net imports even if foreign capital inflows dry up for a few months.

The Indian central bank deserves credit for buying dollars when foreign capital was rapidly flowing into the economy. We had argued in thesecolumns in January that India needs to build a $500 billion war chest, although we had also added that such heavy intervention in the foreign exchange market would compromise the independence of monetary policy given the open capital account. By buying all those dollars, India in effect avoided the mistake it made after 2010 of allowing the rupee to appreciate in nominal terms rather than intervene to build reserves.

The rupee has also begun to weaken. That is not necessarily bad news. The currency has been steady against the dollar in nominal terms but it has appreciated in real terms because of high domestic inflation compared to the rate of price rise in competing economies. The global economy continues to be weak but a fall in the rupee could provide a temporary boost to net exports at a time when the two domestic sources of effective demand (consumption and investment) are struggling.

India has better economic fundamentals than it did two years ago. It also remains a bright spot in a clouded global economic landscape. None of this means that India will not be affected by global financial turbulence, especially in case it turns serious. Indian policy authorities should allow the rupee to depreciate, stay focused on keeping inflation down and push ahead with economic reforms that strengthen the underlying growth driver.

The fall in the rupee is an overdue adjustment given our high inflation. The ruling Bharatiya Janata Party has had a long tradition of treating it as some national disaster. Prime Minister Narendra Modi should prepare to deal with the economic nut cases and yoga gurus who could soon emerge out of the woodwork to trot out their usual paranoia about how a fall in the rupee is a sign of an impotent government.

There may be a mole in your banking app (Livemint)

Banking transactions on an app are common. But beware as someone may be copying the information

Jayachandran/Mint

Most banks ask their customers to download the respective banking apps. And with more smartphones in India (networking infrastructure company Cisco Systems Inc. expects the number to grow 4.7 times to 651 million by 2019), there are many who use banking apps. But how safe are these? “Telling whether an app is secure or not is very tricky,” said Saket Modi, co-founder and chief executive officer, Lucideus Tech, a cyber security firm, which provides online security solutions to banks such as ICICI Bank Ltd, Kotak Mahindra Bank Ltd, Standard and Chartered, HDFC Bank Ltd and DBS Bank India.

There are various reasons behind why Modi doubts that a banking app is foolproof.

A fraud survey report released by Deloitte Touche Tohmatsu India Pvt. Ltd in April, said, “There has been a substantial increase in the dependence on technology in the banking sector. With cyber crime continuing to increase in volume, frequency and sophistication, it is not surprising that the top three areas giving sleepless nights to the survey respondents were Internet banking/automated teller machine fraud, e-banking fraud and identity fraud.”

Many experts voice similar concerns. Mumbai-based cyber expert Vijay Mukhi wrote a letter to the Reserve Bank of India in October 2014, pointing out the dangers that lurk behind using banking apps. “There exists a very major security breach in over a dozen banking apps by Indian banks that I have personally tested. These apps use the standard Android keyboard to enter your username and password. The keyboard in the Android ecosystem is a simple Java app that can be replaced in seconds by a virus,” read a part of the letter. If a virus infects the app, a hacker, sitting anywhere, will have possession of the customer’s username and password, and can control the bank account. “The hacker can also use the bank’s website to use my account,” said Mukhi, who runs a computer training centre, and is former chairman, information technology committee, Federation of Indian Chamber of Commerce and Industry (Ficci) and Indian Merchants’ Chamber. He is still to get a reply from the central bank.

Core issues

The problem is that when a customer tries to log in through a banking app, an Android keyboard is used to key in details. It may be that the user has loaded some other app or has inadvertently clicked on a link that leads to a keylogger getting installed in the phone. A keylogger maps keystrokes, and this can be used to capture personal data whenever keyed in. Someone can also physically install a keylogger on a mobile phone. Mukhi admits that this is difficult to do, but not impossible.

Android apps are more susceptible as Google Store does not vet apps posted on it, and since the source codes of these apps are available, the vulnerability increases. “If you look at normal Android apps, 99% are hacked because source code is available. Around 52% of Apple apps are hacked, even though they have a vetting process,” said an executive of a private bank, who oversees the bank’s online security, requesting anonymity. “Guaranteeing 100% security is extremely difficult,” he added.

One of the reasons behind this is that when an app is downloaded, it asks for permissions, which users give. “The way technology is changing, the new mode of attack will be malware residing in mobile phones and extrapolating data from other apps,” the bank executive said. In other words, there could be apps which may capture data from other apps on the phone which may include financial information.

Level of threat

According to Wegilant Net Solutions Pvt. Ltd, a cyber security firm, out of the 33 Android banking apps in India (22 from state-run banks and 11 from private banks) that allow financial transactions and which it tested, at least 29 apps (21 state-run banks and eight private banks) had at least one security loophole. The firm also tested an app by a state-run bank that does not allow financial transactions. On clicking “about us”, the app was so tampered with that it redirected the user to a login page. An unsuspecting user may think that to proceed any further, it is necessary to login. If she does that, the data got captured. Mint has seen a demonstration video of this process.

Toshendra Sharma, founder and chief executive officer, Wegilant, said, “We have found many vulnerabilities in banking apps, most of which are made by outsourced third-parties.”

“India is no less developed than markets such as Hong Kong or parts of Europe in terms of security, and that too at a lower cost. It’s not about the money spent but the understanding of the problem at the top level, especially in state-run banks,” said Modi.

However, the bank official quoted earlier said that many banks are aware of the threat and constantly monitor for rogue apps.

Basic hygiene

If the level of threat is high and widespread, what can a banking app user do to protect personal information?

Most phones use a system called “containerization”, said Modi. The system does not allow one app to “talk” to the other, or exchange data. But this won’t work with apps that are using common shared resources. For example, two apps using global positioning system on the phone.

There are basic rules that banking app users can follow, even if banks are striving to offer the most secure apps. “A bank may be taking all security measures, but if your phone is breached, it’s not the bank’s fault,” said Modi. Users must realize that protecting personal data is their responsibility as well. Many users fall prey to socially engineered hacking wherein a user gives out data inadvertently to fraudsters.

The bank official added that a lot of people route their mobiles to become the administrator of the phone, download and install keyboard apps, thus becoming vulnerable to hacking.

Updating software regularly; not clicking on random links; avoiding to download too many apps—these are a few things that a user can easily do to avoid theft of financial information.

As for the problem of Android keyboards being used to input data on banking apps, Mukhi suggests that banks could add a virtual keyboard—same as what’s available for Netbanking on a desktop or laptop—as an immediate solution.

Saturday, 9 May 2015

What’s it with Indians and social networks? (Livemint)

While India provides the largest user base for WhatsApp, it gives most of the top social networking sites their second largest subscriber numbers

According to a 7 May newsletter by Internet World Stats News, there were a little over 3 billion Internet users worldwide by end December 2014, and th e number of mobile-only Internet users has gone from some 14 million in 2010 to 788 million in 2015. Photo: Bloomberg

Mumbai: Rapidly increasing mobile penetration in emerging markets like India, coupled with the proliferation of low-cost handsets, is continuing to boost the user growth prospects of US-based social networking sites such as Facebook, LinkedIn and Twitter as also that of communications apps such as US-based WhatsApp, Skype, Viber, China’s WeChat, Japan’s Line and homegrown Hike.

While India provides the largest user base for WhatsApp, it gives most of the top social networking sites their second-largest subscriber numbers.

On Wednesday, LinkedIn, the world’s largest online professional network with over 364 million members globally, said it has crossed 30 million members in India. The site, which had 3.4 million members when it started operations in the country in 2009, grew 50% over the past two years. And India continues to be the largest market for LinkedIn after the US in terms of member base.

On 22 April, Viber said it had crossed more than 40 million registered users in India, attributing the growth to “the surging popularity of the platform and its active and highly engaged community of users”. Viber commenced operations in India in December 2013 at a time when it had just 13 million users. Viber now has over 516 million unique users in 193 countries.

Whatsapp, which was acquired by Facebook for $19 billion in February 2014, had 700 million global users as of March, according to online statistics company Statista Inc. Of these, an estimated 10% users are from India.

Facebook Messenger, on its part, has 600 million global users. Facebook.com itself has around 1.3 billion global users and about 110 million in the country.

Facebook is also promoting a programme called Internet.org, wherein it has tied up with telecom services providers (telcos) around the world to increase the Internet user base by connecting people who are not online.

In less than a year, Internet.org has brought more than 7 million people online--in the nine countries (including India) it operates this programme, Facebook said in a statement on 4 May. Last week, the company also launched the Internet.org platform to help more developers include their services in Internet.org.

But the Internet.org programme is being met with a lot of skepticism from many netizens and activists who believe that the platform can “split” the Internet by offering services selectively and, hence, flout Net Neutrality principles that do not allow for discrimination in online services.

On 15 April, travel portal Cleartrip and media companies Times Group and NDTV logged out of the Internet.org initiative even as Mark Zuckerberg, founder and chief executive of the world’s largest social networking site, attempted to defend his position in sections of the media.

While the debate is not likely to end in a hurry, according to a 7 May newsletter by Internet World Stats News, there were a little over 3 billion Internet users worldwide by end December 2014.

The number of mobile-only Internet users is growing in importance, it said, adding that the number of mobile-only Internet users have gone from some 14 million in 2010 to 788 million in 2015.

India, with a little over 300 million users, is the second-largest wireless market in the world after China, and has the world’s second-largest Internet user base--again after China.

India has nearly 970 million mobile phones of which over 95% are wireless phones and over 22% are smartphones. India also has nearly 100 million broadband connections, and there are many low-cost handsets and even feature-rich smartphones now available for less than Rs10,000.

The number of mobile Internet users in India (173 million in December) is expected to reach 213 million by June, according to the Mobile Internet in India 2014 report released on 13 January. The report by the Internet and Mobile Association of India (Iamai) and IMRB International (a market research firm) also pointed out that the number of mobile Internet users in rural India is set to grow at a rate of 33% from October 2014 to reach 49 million by March 2015 and 53 million by June 2015.

The report revealed that for 74% of the mobile Internet users, the primary activity is to access email, followed by social networking, which is accessed by 61% of the mobile Internet users.

India is also soon going to become one of the biggest markets in terms of new smartphone users as most first-time internet users are jumping directly to mobile platforms, according to a 2 February Morgan Stanley report. It added that the total number of Internet users in India is forecast to exceed 600 million by 2020, and if the pace of smartphone adoption remains strong, Internet penetration in India could touch 46% by 2020.

India also has one of the youngest populations in the world, with a median age of 26 years. As a result, the Indian youth market remains the largest for smartphone and mobile internet use. As smartphone prices in India have decreased, those from low income backgrounds have a greater opportunity to fulfill their aspirations--to own a smartphone and use the internet services offered, according to the Ericsson Consumer Insight report released in April.

The report corroborated that social networking and chatting with friends and family via instant messaging is becoming common in India.

Meanwhile, though India gives these companies a huge user base, it is the US that continues to be the largest market in terms of revenue for most of these social networks and communication apps.

For the full year ended 31 March, Facebook had 936 million daily active users (DAUs), an increase of 17% from a year earlier. Mobile DAUs were 798 million on average, an increase of 31% from a year ago.

Revenue for the March quarter of 2015 totaled $3.54 billion, an 42% increase over a year ago. Revenue from advertising was $3.32 billion, a 46% increase from the same quarter last year. Mobile advertising revenue represented some 73% of this advertising revenue--up from around 59% of advertising revenue in the first quarter of 2014.

With more and more Indians latching on to feature-rich low-cost handsets, the country may soon prove to be a haven for companies like Facebook and Twitter Inc. in terms of revenue growth too, especially with digital advertising spends growing at a fast clip in the country.

More people are buying non-life insurance products online, says study (Livemint)

Increasing Internet access is prompting more customers to buy non-life insurance products online, says study by ICICI Lombard and Google India.

Study indicates that Internet will influence almost Rs.3,000-4,000 billion worth of insurance sales in India by 2020. Photo: Aniruddha Chowdhury/Mint

Increasing Internet access is prompting more customers to buy non-life insurance products online, says research by ICICI Lombard General Insurance Ltd and Google India carried out across 18 cities.

Of the 3,007 respondents, 24% bought motor insurance online and 12% health insurance.

Both young people (25-35 years) as well as elders (46-55 years) said they were comfortable buying motor insurance online. For health insurance, first-time buyers are more willing to buy and renew policies online. In terms of location, respondents from metros (85%) as well as non-metro cities (82%) are almost equally active online in buying insurance products.

“Our combined study indicates that Internet will influence almost Rs.3,000-4,000 billion worth of insurance sales in India by 2020. The findings clearly outline that consumers are shifting to Internet at a rapid pace. For motor insurance, the growth is coming from non-metros users—search queries on Google from non-metros are growing 43% year-on-year compared with 32% from metros. For health insurance, search behaviour has been consistent across metros and non-metros, with queries growing around 45% year-on-year,” said Vikas Agnihotri, industry director, Google India.

The increasing role of mobile Internet is evident from the fact that 85% of respondents said that they researched insurance products on mobile phones while 80% said they did so on a laptop or desktop. More specifically, almost 47% of health insurance and 38% of motor insurance queries come from mobile online platform.

“People buying products online are more long-term oriented. Data reveals that 25% more policy holders buying online opt for family floater policy compared to offline customers. Even in terms of retention, 35% more customers buying health insurance online renew their policy in the second year compared to offline customers,” said Sanjay Datta, chief underwriting and claims, ICICI Lombard General Insurance.

Rupee fall against Dollar to make petrol, diesel costlier (ET)

NEW DELHI: The rupee's fall against the greenback spells bad news for fuel consumers who would have to pay more for petrol and diesel if the currency's weakness persists.

The rupee dipped to a 20-month low to cross the 64-mark against the dollar on Thursday on sustained capital outflows by foreign funds and dollar demand from importers and banks.

Executives working with state fuel retailers told TOI every Re 1 change in the dollar exchange rate pushes up pump prices of petrol ..

It's a myth that venture capitalists take too much risks (ET)

Venture capitalists are often considered to have an aggressive appetite for risks. Sudhir Sethi, founder chairman and managing director, IDG Ventures India, entered the profession around 1995-96, a time when VCs were disparagingly known as 'vulture capitalists' in India. It took Sethi five months to resign from his job at Wipro to take the calculated risk of becoming a VC. "I hesitated because after being in a secure job for 12 years, I would be potentially going to a new job that's extremely ..

Friday, 8 May 2015

What India needs to do to get GST right (Livemint)

Ironically the biggest threat to a successful GST may be Modi’s government itself

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Why the Sensex is falling: rising US bond yields (Livemint)

The chart shows the remarkable inverse correlation between the US 10-year bond yield and the Sensex in the last one year.

Graphic by Prajakta Patil/Mint

The sell-off in the markets has been linked to rising yields in Germany and the US. Markets have been worried about the US Federal Reserve raising rates and it now seems the US bond markets will price in a rate hike soon. The upshot has been another tantrum in the markets, much like the taper tantrum almost a couple of years ago, when the slowing of bond purchases by the US Fed was first mooted.

The chart shows the remarkable inverse correlation between the US 10-year bond yield and the Sensex in the last one year. Note that the general trend is for the Sensex to go up when the treasury yield falls and vice versa.

Private equity push to India sees many first-timers (Livemint)

PE investors rushed to pick up equity in firms in India last year as they sought to increase exposure to consumer technology, healthcare sectors

Photo: Mint

Mumbai: Global private equity (PE) investors, including many who had shunned India in the past, rushed to pick up equity in private and public firms in the country last year as they sought to increase exposure to the fast-growing consumer technology and healthcare sectors.

According to Bain and Co.’s India Private Equity Report 2015, shared exclusively with Mint, the number of funds investing in India rose by 30% in 2014 compared with a year ago. Some 440 funds invested in India last year. Close to 50% of these were doing so for the first time or after a long gap. Investors who invested after a gap of two years have also been included in this category.

“There are quite a few new investors who are investing in India including some who were dormant for the past few years. A new class of investors has now come to India, particularly on the early stage and growth side,” said Arpan Sheth, the head of Bain’s India PE practice and lead author of the report.

Some of the new funds that invested in India last year include DST Advisors, Greenoaks Ventures, Steadview Capital, Tybourne Capital, Brookfield Asset Management Inc., Saama Capital India Advisors Llp, Baillie Gifford and Co., Myriad Asset Management, PSP Investments and Canada Pension Plan Investment Board.

Many of these investors participated in some of the largest transactions last year—infusing money into Flipkart, Snapdeal, Unitech Corporate Parks and Kotak Mahindra Bank Ltd, among others.

“General partners (GPs) were always keen on investing in India but due to the poor investment environment very few people invested between 2009 and 2013. After the change in government at the centre, limited partners have become bullish about India and they are allocating capital to certain GPs,” said Prakash Nene, managing director at Multiples Alternate Asset Management Pvt. Ltd. Multiples is currently on the road to raise $600 million from global and domestic investors.

Limited partners are investors who commit capital to a PE fund. GPs are the managing partners in the fund.

Other firms which have raised capital over the past six months and have allocated capital for India include Baring Private Equity Asia, I Squared Capital, Caryle Group LP.

The number and value of deals also increased in 2014. According to the report, PE and venture capital (VC) deals worth $15.2 billion were closed last year, an increase of 28%. This was the highest in the past five years and came close to the 2007 peak of $17.1 billion. Deal volumes rose 14%, with early- and growth-stage deals accounting for 80% of all deals last year.

To be sure, deal activity surged across the Asia-Pacific region, except in Japan. The value of deals concluded (excluding real estate, infrastructure and deals less than $10 million) in the Asia-Pacific, excluding Japan, rose 63%. Spurred by a number of billion-dollar mega deals, Greater China saw a 180% year-on-year rise in deals.

The highest number of investments came into the consumer technology (CT), real estate and banking, financial services and insurance (BFSI) sectors. The Bain report noted that deals in CT firms led in both deal value and volume, accounting for 31% of overall PE deal value and 35% of deal volume. Investments in the sector rose from $1.2 billion in 2013 to $4.7 billion in 2014, as the number of deals grew by 18% to 280.

The burgeoning activity in the CT space led to a surge in valuations of these assets. Most fund managers agreed that valuations were high, but still expected a 10-25% increase in valuations in 2015.

Seth said investors were now keenly evaluating firms which act as enablers for CT firms, such as those that provide logistics and other services. “These enablers are very important for the ecosystem and the growth of e-commerce companies. From an investor perspective, the enabler companies are a way to play the market and not take a bet on a particular segment in e-commerce or any one particular company,” he said.

While 2014 was a good year for investments, the experience in terms of exits remained mixed. According to the report, the number of reported exits rose by 14% from 2013 to 2014, though the value of exited investments dropped by 22% to $5.3 billion, compared with $6.8 billion in 2013.

“There are indications of significant exits in the works. We expect that over the next year, we will see a higher number of exits—across both strategic sales and in the capital markets. It is likely that these exits will include both profitable exits on relatively recent deals and unprofitable exits from legacy investments made in 2007-08,” said Darius Pandole, partner at New Silk Route, a PE firm.

The report also said funds continue to face challenges with deals concluded in the years before 2008. If viable exits don’t occur in the next two to three years, one could expect a shakeout in the industry as fund tenures near expiry, the report added.

Some of the biggest exits last year were in public listed companies. Global PE fund, Bain Capital, sold a majority of its shares in two-wheeler company Hero MotoCorp. Ltd in two tranches and netted $650 million.

“The run-up in the stock markets has resulted in valuations going up. Despite this, current valuations are more rational than those prevailing during the boom of 2005-07. Having gone through multiple cycles, the PE industry is more mature and circumspect today and hence more aware of appropriately pricing in risk,” Pandole added.