Category: Personal Finance

Inflation Rates

Changes in market inflation have an impact on currency exchange rates. If a country’s inflation rate is lower than that of another, its currency will increase in value. When inflation is low, the rate of increase in the price of goods and services is slower. A country’s currency appreciates when inflation is continuously low, while a country’s currency depreciates when inflation is high, which is generally accompanied by higher interest rates.

Higher inflation usually results in a devaluation of their currencies in comparison to those of their trading partners, as well as higher interest rates. When an economy has excessive inflation, the central bank will raise interest rates to try to moderate growing prices and access to cheap credit. Higher interest rates make a currency more enticing.

Interest Rates

Changes in interest rates affect the value of a currency and the value of the dollar. Interest rates, currency exchange rates, and inflation rates are all interconnected. Increased interest rates attract more foreign capital and cause exchange rates to rise, causing a country’s currency to gain.

Interest rates that are higher attract foreign capital, causing the currency rate to rise. Increased interest rates, on the other hand, have a smaller influence if inflation in the country is significantly greater than in other countries, or if other factors contribute to the currency’s depreciation.

Current Account Balance

It is thought to be the most comprehensive indicator of a country’s cross-border trade. Simply expressed, it refers to a country’s total goods, services, revenue, and current transfers to all of its trading partners. A positive current account balance means a country lends more to its trading partners than it borrows, whereas a negative current account balance means the country borrows more from its trade partners.

Excess foreign currency demand drives down the country’s exchange rate until local goods and services are affordable to foreigners and foreign assets are too expensive to generate sales for domestic interests.

Monetary policy and economic performanc

Investors are more likely to seek out countries with a history of excellent economic success and sound monetary policy. The demand for and value of the country’s currency will surely rise as a result of this.

With the current status of the world economy, it’s clear that we’re in a global downturn, with fears of recession imminent. A depreciation in the currency rate may occur during a recession since interest rates normally decline; however, this is not always the case.

Other variables that can affect currency value during a recession include a decline in foreign investment, which would lower the value.

The strength of a country’s economy can have a significant impact on the currency’s strength. A country’s strong growth rate will result in increased demand for products and services, as well as greater job possibilities for people and a more appealing destination for money and investments.

Conclusion

The real return on a portfolio is determined by the exchange rate of the currency in which the majority of its investments are held. The buying power of income and capital gains received from any returns is obviously reduced while the exchange rate is falling. Furthermore, interest rates, inflation, and even capital gains from domestic assets are all influenced by the exchange rate.

Phoenix Mills- ‘Buy’ for a target of Rs. 1020

ICICI Direct has maintained its ‘Buy’ rating on the country’s leading mall developer and operator, Phoenix Mills with a target of Rs. 1020, implying gains to the tune of over 21% from the last traded price of Rs. 840. The stock at the time of recommendation commanded a price of Rs. 867.95.

Drivers for future price performance of Phoenix Mills as noted by ICICI Direct

• Focus on core competence in the area of development and operation of retail malls in the country; under-development retail GLA of approximately 6 million sq ft to trigger growth.

• Retail rental income expected to grow in the medium term at a CAGR of approximately 16% to |Rs. 2175 crore in FY20-25E.

• Decline in Covid-19 cases and reopening of economies to fully operationalise its mall and hospitality asset; rentals and ARR to improve, added the brokerage report.

• Furthermore, strong balance sheet and strategic expansion proposals to add 1 msf of retail area annually.

For the just ended June quarter of FY22, the company’s results got impacted owing to lockdowns. Revenue from both retail and hospitality fronts was dragged lower on a sequential basis in the range of 49-57 percent, while on a YoY basis hospitality revenues witnessed a good growth of 57%. Commercial segment turned out to be the strongest with revenue growth of 61% YoY.

Alternate stock Idea: Other than Phoenix Mills, ICICI Direct is positive on Oberoi Realty from the real estate segment. The brokerage firm recommends a ‘Buy’ on Oberoi Realty for a target price of Rs. 830 as against the current trading price of Rs. 699, implying a potential upside of 19%. ‘Oberoi Realty is a quality play MMR premium real estate’, adds the brokerage.

2. Brigade Enterprises-‘Buy’ for a target of Rs. 405/ share

ICICI Direct is bullish on the stock of South India-based property developer, Brigade Enterprises. The brokerage has set a target of Rs. 405 to be realized over a period of 12 months. The shares of the realty major that has a competitive edge owing to wide product base last traded at Rs. 328.1, implying gains of over 23%.

ICICI Direct values Brigade Enterprises at Rs. 405/scrip on below rationales:

• Sales is picking up in the residential business with strong pipeline of 18.1 mn sq ft ongoing projects and 1.9 mn sq ft upcoming projects.

• Stable cash flows in office leasing portfolio with traction in leasing to gain momentum over the medium term; normalisation in malls operation to provide further impetus.

• Hospitality portfolio recovery led by reopening of economy

In the just ended quarter, sales volumes of the company were hit on a quarterly basis. Revenues also saw a decline of over 50% on a QoQ basis owing to weak traction in hospitality and weak rental revenues.

Alternate Stock Idea: Besides Brigade, ICICI Direct likes Mahindra Lifespace in real estate space and calls it to be “A play on residential expanding real estate portfolio”, the brokerage recommends buying the scrip for a target price of Rs. 940. The scrip last as on August 10, 2021 closed at Rs. 752.35 per share on the NSE.

Disclaimer:

Note stock market investment is subject to risk. You need to analyse your financial goals, risk appetite, age etc. before taking plunge into the equities market. Further, the stocks listed in the report are for informational purpose only and need not be construed as investment advice.

GoodReturns.in

The RBI has recently issued the Sovereign Gold Bond (SGB) Scheme 2021-22 – Series V for the subscription. This tranche will be open from today (9th August) to 13th August 2021. The gold price will be working out to Rs. 4790 per 1 gram gold. The nominal value of the bond is based on the simple average closing price for gold of 999 purity of the last three business days of the week preceding the subscription period. Investors who will apply online will be offered an additional discount of Rs. 50 per gram lesser than the nominal value. For them, the issue price of a gold bond will be Rs. 4740 per 1 gram gold.

How to start the investment procedure?

As the RBI has issued its fifth tranche of SGB scheme investors are eyeing for it – consistently decreasing gold prices now are winding up more people towards gold investments.

The procedure to invest in SGB starts with filling up the application form of SGB. The application form is provided by the issuing banks or Stock Holding Corporation of India Limited (SHCIL) offices or designated Post Offices or the agents. The form is also available at the RBI’s official website. Banks now also provide online application facilities.

The application form must be accompanied by the Know-Your-Customer (KYC) norms. It will require a ‘PAN Number’ issued by the Income Tax Department to the investor.

The investor is allowed to hold only one ‘unique investor Id’ linked to any of the prescribed identification documents. The unique investor ID will be used for all subsequent investments in the scheme. quoting of PAN in the application form is mandatory for holding securities in the dematerialized (Demat) form. A given mail ID will receive a confirmation mail after confirming the buy.

In case of the investment through SBI, the application form is available on the SBI’s official website (onlinesbi.com) under e-services. Similarly, on the other banks’ websites, the form will be available. Else the investors can contact their concerned bank’s branch directly to invest in SGB.

SGBs are also listed on the exchange 10-15 days after the issue and can be traded. If an investor wants to buy SGB via Zerodha at the exchange, they will have to log in to their Zerodha account first. Then the page ‘Invest in gold bond and ETFs’ will have to be reached. One has to be sure of having sufficient funds in the equity account on the last day of the issue. Then under SGB, the price, quantity to invest (units of SGB), and offer dose will have to be filled. Thus an investor can place the required order. Units will be allotted to the Demat account within 10 working days and a confirmation e-mail will be sent.

Who can invest in SGBs?

A person resident in India is eligible to invest in SGB. Eligible investors include individuals, Hindu Undivided Families (HUFs), trusts, universities, and charitable institutions. Individual investors with subsequent changes in residential status from resident to non-resident may continue to hold SGB till early redemption/maturity.
Joint holding of SGB is allowed. Additionally, guardians can also apply for SGB on behalf of a minor for the child’s future.

The Bonds are issued in denominations of one gram of gold and in multiples thereof. Minimum investment in the Bond is one gram with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF), and 20 kg for trusts and similar entities. In the case of joint holding, the limit is 4 kg. The annual ceiling will include bonds subscribed under different tranches during initial issuance by the government and those purchased the same from the secondary market.

Benefits of SGB

The Bonds bear interest at the rate of 2.50% per annum (half-yearly basis) on the amount of initial investment. The last interest will be payable on maturity along with the principal.

There will no capital gain tax on redemption and it can be used as collateral for loans. For SGB there is no financial pressure of making charges or GST or storage costs. SGB offers an easy liquidity option as it can be traded in the secondary market.