Rupee depreciating to an all-time low of Rs57.30 to a US dollar has wiped away most of gains arising from oil dropping below $90 a barrel for the first time since December 2010
New Delhi: Petrol prices should have been cut by Rs2.20-Rs2.30 a litre as global rates have fallen to 18- month low but oil companies will not reduce prices as they watch the volatile rupee that is making imports costlier, reports PTI.
Rupee depreciating to an all-time low of Rs57.30 to a US dollar has wiped away most of gains arising from oil dropping below $90 a barrel for the first time since December 2010.
"The oil companies are fully cognisant of facts. They are watching the volatility (in rupee and global oil prices). Very soon they will take a decision," Oil Minister S Jaipal Reddy told reporters.
State-owned oil companies, who as per practice revise rates of petrol on 1st and 16th of every month based on average imported cost and forex rates of the previous fortnight, have skipped changing rates on 16th June.
"There is lot of volatility in prices of crude oil and value of rupee. There is double volatility," Reddy said. "We are relieved at the fact that price of crude oil have eased. But this has been upset by decrease in value of rupee," he said.
"We are watching the situation with keen interest and we are watching it on a day to day basis," he said, adding that for a nation that is 76% dependent on imports to meet its requirements, value of rupee becomes very important.
Officials in his ministry said the gasoline cracks or the difference between cost of raw material (crude oil) and the price of product (petrol) had narrowed to just $3 per barrel. In comparison, cracks for diesel were as high as $12-$13 a barrel.
With such narrow spread, any upward movement in crude oil price or devaluation of rupee would force an increase in price in near future, if the rates were to be cut now.
Sources said Indian Oil Corp (IOC), Bharat Petroleum Corp (BPCL) and Hindustan Petroleum Corp (HPCL) will hold petrol price for a few more days and watch the developing situation.
"There is no revision in petrol rates in the next couple of days. We will watch the situation for next couple of days before taking any decision," a source said.
Oil companies had last cut petrol rats by Rs2.02 a litre with effect from 3rd June in a partial rollback of the steep Rs7.54 per litre hike effected last month. Petrol at present costs Rs70.24 a litre at IOC petrol pumps in Delhi.
Sources said the last revision was done keeping in mind an average of $115.77 per barrel rate of gasoline, against which domestic petrol prices are benchmarked.
Gasoline rates have since fallen to $106.93 per barrel. But the rupee has devalued to Rs55.69 to a US dollar from Rs54.96 to a US dollar (average of first fortnight of June).
There was a scope to reduce petrol price by up to Rs2.20-Rs2.30 per litre but with rupee falling further, the cost of imports has again risen.
"Today, rupee dropped to Rs57 to a US dollar. There is excessive volatility," the source added.
A comprehensive empirical research study has proved that financial advisors in America have made clients worse off. It would be interesting if a similar study be undertaken in India
Financial advisors fail to take the best interest of clients while giving advice, and in some cases make clients worse off, a recent academic paper has concluded. More pertinently, the paper said that advisors encourage returns-chasing behaviour and push for actively managed funds that have higher fees, even if the client starts with a well-diversified, low-fee portfolio. While we do know that sometimes fiduciary duty is lacking and most advisors look after their own interest, the same has rarely been documented and proved in a scientific manner in convincing fashion. In the research paper titled, “The Market For Financial Advice: An Audit Study,” Sendhil Mullainathan, Markus Noeth and Antoinette Schoar have concluded that “advisors fail to de-bias their clients and often reinforce biases that are in their interests”. In other words, financial advisors do not look after the best interests of their clients. While this academic study is confined to the United States, one wonders what is situation in India.
The researchers audited clients in the Boston area and studied individual portfolios and their advisors. The paper said “(advisors) are unwilling to lean against biases that help them further their own economic interest, e.g. maximise fees. We find that in some cases the advice even pushes clients towards funds with higher expected fees with little change in portfolio diversification and thus would reduce the expected returns on their portfolios.” The paper also said that average advisers were much more likely to recommend actively managed funds (49.7% of the cases) versus index funds (only 7.3% of the cases).
It is pertinent to note that an index fund is supposedly one of the soundest instruments anybody can buy in the US with a long-term horizon, “were almost never mentioned by the advisers.” Index funds outperform actively managed funds, due to the lower fee component. However, advisors don’t seem interested in selling them to consumers as it earns them less income. Sometimes, advisors even churned well-designed portfolios. In the sample universe of clients conducted, the researchers found out that if a client had an index portfolio, advisors suggested changing portfolio in 85.4% of the cases.
It is discomfiting to hear that advisors try to change or modify the existing portfolios, especially when it has an index fund in it. The paper said, “Actively managed funds were recommended especially frequently to clients who came in with an index fund portfolio (61.0% of the time) or just cash investments (75.0% of the time).” An advisor is more likely to advise an actively managed fund, as the fee component is much higher than a passively managed fund.
In some cases, the financial advisor faces pressure to do business and increase sales. So he/she is more likely to mis-sell, even if a client’s portfolio is well-balanced and does not need modification. The paper notes, “These results show that even though the meeting between the client and adviser is also a sales situation, advisers are willing to go against the (revealed) preferences of the client and suggest changes away from the current strategy in the majority of cases.” They will even butter up clients by acknowledging their good choice only to change the portfolio later on.
This brings us to one important facet of the investment advisory business—fees. Most advisors are only interested in churning clients’ portfolios, as it nets them more fees, or advise funds with high fees as we just wrote. The paper said, “Overall, advisers seem to support strategies that result in more transactions and higher management fees.” In India, this would usually mean commission-based advisors as—more the churning there is, the higher the fees. However, it doesn’t stop here. It was found out that advisors were not forthcoming or honest when it comes to fees. This is a startling revelation. For example, whenever pressed about the fees, rather than be honest, they would downplay it or use it differently, to put the fees they earn in good light. For instance, they would say “This fund has 3% fee but that is not much above industry average.” This is another form of mis-selling, which we normally see in India.
The failure of the industry and a large chunk of financial advisors to provide fiduciary duty to clients, in an honest manner have resulted in even genuine advisors facing difficulty in finding business. The paper cited, “Advisers who are interested in providing better advice might be unable to gain a market share if biased retail investors are unable to differentiate good from bad advice.”
The definition of advisors used in the study was: a person working in a bank, retail investment firm or their own independent operation, focusing on the lower end of the retail segment. Most of them are paid on commission based on the fees and volumes that they generate, and only a small subset of the advisers are independent and would be paid based on capital under management.
Moneylife has written several times in the past about advisors not acting in the best interest of their clients. This is most prevalent among banks. The most recent high-profile case example was HSBC Bank robbing well known celebrity Suchitra Krishnamoorthi . We also had written about the Banker’s Dozen where bankers will offer you less and charge you more.
This is the first time that a comprehensive study has proved that financial advisors do not align themselves with clients’ interests. It would be interesting to note what the situation would be like in India.
Delay in shipments was the main grouse of merchants in the Middle East. The 50th part of a series describing the unknown triumphs and travails of doing international business
The mail to and from India generally took 15 days arrive, when it was being delivered by the postman; but because of the post box arrangement made, we began to get tonnes of mail within seven days, though some arrived after 10 days from posting in India. It appeared that my reporting was satisfactory, as some of the exporters who had the opportunity to speak to our chairman or secretary had appreciated the good work done and the efforts being put to improve services.
In course of my afternoon visits, I was able to meet some leading merchants, most of whom were acting as agents for supplies to Saudi Arabia. They included Globetraders (owned by MS Dewan), Paul Weil & Fils, Jamil Bajk and Amin O Rifai, to name a few. It was through the local agents, I was able to gather more information on the pricing of products by our competitors, and Samir from Paul Weil would happily supply me samples of pipe fittings from Taiwan which were superior in quality. Indian galvanized pipes were good, but he always mentioned that unlike Japan, which had no particular restriction on the quantity of half inch pipes, Indian manufacturers and their agents did not give more than 10% of the total value for this mostly used size in the construction industry. He did mention that India was unbeatable in cast iron products and diesel engines, but for delayed shipments, we could achieve more!
As for imports into Lebanon, he always lamented on the poor shipping facilities and delays in commission remittance. As I regularly met VP Singh, our commercial attaché at the embassy, he had similar stories to tell and he felt that Indian exporters did not take the trouble to approach the Reserve Bank of India (RBI) for permission to remit commission immediately upon booking the order. Besides, as there was no restriction for remittance of commission up to 5% of the fob value, he also felt that it was fundamentally the careless attitude of the exporter that caused delays.
Some of the Indian exporters who spent several days in Lebanon pointed out that their main problem was getting a visa to go to Saudi Arabia, though they were not much keen in going to that country, not only because of language, but also for problems created in the past by others in delayed shipments, etc.
There was mail coming from my head office asking me to plan a visit to this market because of its size and importance. Armed with a letter of introduction and my own application, I submitted my documents for a visa. After a chat with the counsellor, I was given a visit visa for fifteen days, but after I paid some SR100 (riyals) as Religious Tax to SAMA (Saudi Arabian Monetary Agency), because I was travelling during Haj time. I think at that time the Indian ambassador, who had just joined was Mr Abdullah, a former IG of Police from Madras, and Mr Fazul ur Rahman Bijli was the commercial secretary. I suppose it was good luck that all of us became good friends and were able to depend on each other for advice and support.
After visiting Jeddah for a few days, when I met leading importers like Ghulam Masood,Unitar (United Arab Agency) manager Karim, Mohammed Abdullah from National Commercial Bank, Bashaikh, Bamoudi and others. I got an idea of the market, its expectations and the problems they faced, which again, revolved around shipment delays, part shipments and poor packaging. Al Rajahi, though a large family-owned company with varied interests, was one of the few which were happy with the quality of diesel engines, but not happy with shipments!
I moved on to spend a few days in Riyadh before reaching Dammam, the second largest port, much closer to India. I realized the potential of this market, but the main problems were already known in terms of quality, full quantity, price and regularity of shipments. After a full working day in Bahrain, I moved on to Dubai on the last leg of my first overseas tour covering my beat. This market was full of Indian merchants and I was welcomed by Rohit Patel of Patel Trading Co, who were the sole importers of Sigil Diesel engines and a wide range of other engineering goods like MS pipes, fittings and pump sets, to name a few.
The sleepy village of Dubai was becoming a modern town as construction activity was taking place in several areas. I felt and agreed with Rohit that it may be good idea to have at least a sub-office of the council here, as the market was developing.
The visitors from India were now increasing, thanks probably due to the great number of enquiries that were being generated. Some of those with whom I had actually gone to negotiate business had confirmed the details to our head office, from where I began to get letters of appreciation for the good work done.
I had a chance to meet Munir Haddad, from Dresden Bank who was the owner of Commestra building from whom we had rented our office. I met him in Suleiman's house, a partner of Parekh, along with Meena Ghandour who travelled to Saudi Arabia and sold steel and allied products. Rajagopalan, who had spent some time in Ethiopia and was associated with the Military Academy of the Haile Saleisse's government, was now with Maliban Glass Works, making bottles for the soft drink manufacturers of the Middle East, became friendly and had lots information and advice to give to make my work even more enjoyable than it was before.
Mooted by Casewa of STC, few of us joined to form a joint venture committee with a view to meet regularly and think of areas where India could profitably enter into the area of joint ventures, instead of being shop keepers in opening and operating shops of Indian handicrafts.
Although we had spent a few months in Beirut, we had not seen any of the historical sites or places of interest that a visitor would like. I had received a lot of information on Baalbek, the historical site and about the Grotto and Jeita caves in the mountains. Because of the distance, I had not travelled alone to the Casino du Liban on my own, except, when a couple of exporters made a special request that I accompany them. While they went and saw the floor show, I spent more time watching the games being played in various halls, like the slot machines and roulette. I neither had the money nor the knowledge to play in such a large and frenzied atmosphere.
As I settled down in the first few months of operation and the year was coming to a close, I was determined to establish my name in getting the job done in the area, and breaking through to increase our exports.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)