Impact 
Taking pot-shots at each other is like a game of tag for politicians and we, the voters, are accustomed to watching them go, “You’re it”! There’s hardly anything done to change the situation, we observe what goes on around us and then we speak through the ballot box; it’s deafeningly loud. We have seen this happening one more time.
While many were expecting a “touch and go” election in Bihar, with two equally powerful alliances contesting for the state assembly, the results were rather one-sided. The humiliating defeat of Bharatiya Janata Party (BJP) in the Bihar elections was seen as a significant event on the political landscape of India. Is popularity of Mr. Narendra Modi ebbing? He campaigned aggressively even for state elections like he did for Lok Sabha elections. Last time his charisma worked but failed miserably in state elections.
About 18 months ago, when Mr. Narendra Modi was campaigning for Lok Sabha Elections in Bihar, his fellow party man and the former deputy CM of Bihar had compared him to the “Ashwamedh Horse”, a mythological horse that halts only after reaching its destination. It seems the galloping horse of NDA has finally been reined in this time. Electoral loss in Bihar has been a wakeup call to the NDA Government.
Post Bihar elections, experts and political analyst started discussing the possibility of slowdown in reforms as some of them feared that the Government may resort populist measures to woo masses.
But contrary to that, the Central Government quickly got into damage-control mode on several fronts. To shore up the investors’ confidence in India, the Government has recently announced some ground-breaking reforms in Foreign Direct Investment (FDI) Policy. Although, there’s a neon-bright question mark about the timing of the announcement for these reforms, the decision is backed by an economic agenda and not a political one.
Let’s see what has changed in the FDI policy..
As per the note released by the Department of Industrial Policy and Promotion (DIPP), the Government has eased the FDI policy for as many as 15 sectors that chiefly include, Defence, Broadcasting, Civil aviation, Single Brand Retail, Private Sector Banking, Construction and Development, and Agriculture and Animal Husbandry to name a few.
The highlights…
- In the Defence sector, up to 49% of investments are allowed under Government approval route. Above this limit, any investment has to be approved by the cabinet committee on security. With the change in the policy, now foreign investments below 49% will be processed under the automatic route and those above 49% will be permitted by Foreign Investment Promotion Board (FIPB).
- Doing away with all sub-limits for foreign investments in Private Sector Banking, the Government has introduced a composite limit. By this, foreign investments by permitted entities are now allowed up to74% of the sectorial cap.
- The Government has allowed manufacturing companies to sell products through wholesale and retail including (e-commerce routes) without taking any prior approval from the Government.
- Ceilings on foreign equity in case of Non-Scheduled Air Transport Service, Ground Handling Services, Satellites-establishment and operation, and Credit Information Companies have now been increased from 74% to 100%.
- At present, the FIPB considers proposals of foreign investments up to Rs 3,000 crore any investment above this limit requires an approval from Cabinet Committee on Economic Affairs (CCEA). The threshold limit has been raised to Rs 5,000 crore now.
As per DIPP, “The Crux of these reforms is to further ease, rationalise, and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of Government route where time and energy of the investors is wasted.” The India has ambitious plans to improve its ranking in the Word Bank’s list of countries with “the ease of doing business”. The recent amendments to the FDI policy are expected to make India an investor-friendly destination. FDI, wherever needed, may help India raise capital in sectors that are critical to economic growth. Reforms in the FDI policy are also expected to revive the Capex cycle, foster investments, and generate employment.
PersonalFN is of the view that it remains to be seen how much foreign capital India actually receives on account of these amendments in the FDI policy. Having said this, the changes to the policy have a potential to contribute significantly in economic growth, provided foreign investors find them attractive.
After rout in Bihar, the Modi-led NDA has to focus on good governance and economic growth. This is a crucial time for the PM as tasks are mounting and the five states (Assam, Kerala, Tamil Nadu, West Bengal and Puducherry) are gearing up for the 2016 elections. The Government is terming changes in the FDI policy as “one more proof of minimum government and maximum governance”. However, the arduous journey to get things back on track may have just begun and the Government has three years and six months until its term ends. The present changes in FDI policy appear to be a small but important efforts.
The political climate in India is certainly changing with the opposition getting charged up after the Bihar elections. Under such circumstances, if the economic growth takes a back seat and inflation keeps mounting for the aam aadmi, markets will find it impossible to justify current premium valuations and may eventually fall. Until then, let’s hope the mythical horse can reach a real destination!
Impact
According to the Hindu calendar year, Samvat 2071 ended recently. In the year gone by, investors witnessed many ups and downs. And broadly, major asset classes such as equity and gold disappointed investors. While India’s bellwether Index S&P BSE sensex lost about 4%; gold dropped about 6% in Samvat 2071. Investors are prepared to deal with volatility associated with stocks, however, sustained losses made by the precious yellow metal have been unnerving for many. After all, Indians trust gold more than their Governments, which is why we see an insatiable appetite for gold rather than that for financial assets. There are only a handful of takers for financial assets considering India’s population. Although, India’s love for physical assets such as Gold and Real Estate is well known, the factors driving their prices are often ignored. Gold has fallen nearly 20% over last 3 Samvats. Now people are anxious to know where Gold is headed. They religiously buy gold every festival season, believing it will be a highly-secure investment for them. After waiting patiently for 3 years, some may start to feel impatient.
How gold is placed in Samvat 2072?
Internationally the gold prices are affected by the uncertainty pertaining to the monetary policy action of Federal Reserve in the U.S. It has been long expected that the Fed would raise interest rates sooner or later.
As soon as that happens, real interest rates on US$ denominated bonds may again turn positive which are negative at the moment. If the debasement of US$ is a positive for gold prices, reversal of the process would be a negative for gold prices. Now what remains to be seen is the pace of interest rate reversal. If the Fed goes aggressive on hiking the rates, this will be a downside for Gold.
But before you draw any conclusions, give it time, until the interest rates in the U.S. go up and the value of dollar rises against the basket of some major currencies of the world. In effect, Indian Rupee is vulnerable to a fall and any asset that is US$ denominated may not fall much for Indian investors. In short, prices of gold may not fall in India as much as they might fall for investors globally. A lot depends on the movement of Indian Rupee against US$.
Apart from monetary policy of the Fed, there are many factors that affect the Rupee-Dollar equation. Flow of foreign capital, inflation, fiscal deficit, and import-export numbers are the prominent ones. Effectively, gold prices in India will be affected by these factors as well.
As far as demand for physical gold is concerned, now there is one more factor which will potentially affect the demand—Sovereign Gold Bonds. The Government wants to provide investors an opportunity to invest in gold through sovereign bonds acting as a proxy on physical gold. At present, there is a difference between rates of spot gold and rate charged per gram to investors of these bonds. As and when these bonds become open for trading on exchanges, the price disparity may go. Nonetheless, investors should remember that Gold Bonds pay interest at 2.75% p.a.
PersonalFN believes you would be better off if you ignored the current downtrend in Gold. Apart from profits every year, buy gold periodically with the aim of diversifying your portfolio. It is always desirable to hold 10%-15% of your investments in gold. While you may buy gold in physical form, new avenues such as Gold Bonds also deserve your consideration.
Impact
There’s a vast difference between liberty and unrestricted liberty. Ideally in a democracy, there should be liberty to all. People shouldn’t be muzzled or deprived of anything, especially the pursuit of personal happiness. So, liberty for anyone is good to the point it doesn’t bother or interfere with another’s rights. When such a situation begins to affect the masses at large, one needs to take heed of it. In our story, this is exactly why Securities and Exchange Board of India (SEBI) is putting all (trans)actions of mutual funds under scanner.
No shortcuts available anymore…
To begin with, there were no restrictions on launching New Fund Offer (NFO) per se. Mutual fund houses adopted an opportunistic approach and launched a consistent stream of NFOs when markets were near the peak and valuations were high. Unfortunately, investors too were confident about equity markets and hence were a bit complacent too. Commission-driven distribution models and lack of awareness about investing made it easy for mutual funds to launch NFOs and collect monies quickly.
Capitalizing on upbeat market sentiments | Calendar Year | Number of NFOs Launched | | 2012 | 4 | | 2013 | 29 | | 2014 | 77 | | 2015# | 60 | Note: Only equity oriented NFOs are considered
# NFOs launched in 2015 so far
Data as on November 06, 2015
(Source: ACE MF, PersonalFN Research)
The path of proving one’s mettle before asking investors for fresh funds, and/or the practice of wooing new investors with a rock-solid track record had proved rather difficult. Encouraged by the apparent success, mutual funds got habituated to this NFO-hammock cosy environment and enjoyed unrestrained liberty in operations. This made the lax investors greedy enough to err from their path. Many times, the difference between these two schemes were so subtle that it would’ve taken a while to identify these through layman eyes. The scheme’s objective, investment pattern, strategies, focuses looked identical.
To know more about this and PersonalFN’s views over it, please click here
Impact
Diwali, the festival of lights is here! Like every year, front pages of publications will feature festive sales ads trying to lure potential customers. Stores and malls including e-retailers, will adopt another smartly recycled promotional strategy to attract superlative footballs and eyeballs, leaving no stone unturned on the discount bonanzas. Evidently, the prevalent ever-green plastic money culture has exponentially primed retailers to woo potential customers through cash-back offers,EMI options, waiver in processing fees, etc.
Festive offers may entice you to shop more than your means and many swear by the instant gratification retail therapy gives you, but don’t forget to take into account your priorities. For the short-term joy, best not sabotage long-term financial wellbeing. Swipe your card thoughtfully.
Before making impulsive purchases, evaluate whether your current finances permit such purchases.Splurging with a credit card can eventually land you ina debt-trap, if you are unable to repay all your dues on time. Living within one’s means, safeguardsone’s long-term financial wellbeing. Focus on the larger goals in life, such as buying a dream home, ,your children’s future (their education and marriage), and your own retirement, apart from ahost of other ones.
To read more about this news and our views, please click here.
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- A shopkeeper sitting on a huge pile of inventory is always under pressure to clear the stock and avoid loses. For quite some time, builders and developers have been passing through a similar situation. Lull in the real estate market, adamantly high prices, and ample of supply, destroyed the real demand for new buildings—commercial as well as residential. Things seem to have started changing now. Given the cash-strapped position of many developers, now the focus has shifted from earning profits to clearing inventories and saving the day.
As many of them are now offering 15%-20% discounts besides attractive value-adds; real estate companies expect to clear up more inventory this season. A lower interest-rate regime is expected to make home loans cheaper as banks look to pass on the benefits of the RBI actions. Now, that’s a positive for the sector.
It is needless to say, speculation on real estate prices is unhealthy. If you are yet to buy your first home, don’t try to time the entry and wait for further correction. It may not come your way anytime soon.
Do you know what John Mynard Keynes once said? “The market can remain irrational longer than you can remain solvent.” Though the message might have been for equity investors, real estate buyers have more reasons to buy it.
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Foreign Direct Investment—FDI: An investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in equities listed on a nation's stock exchange. Entities making direct investments typically have a significant degree of influence and control over the company into which the investment is made. Open economies with skilled workforces and good growth prospects tend to attract larger amounts of foreign direct investment than closed, highly regulated economies.
(Source: Investopedia)
| Quote :“Successful investing is anticipating the anticipations of others” - John Maynard Keynes
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