  | | May 23, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 24,693.35 | 571.61 | 2.37% | | Re/US$ | 58.46 | 0.83 | 1.40% | | Gold Rs/10g | 27,950.00 | -1800 | -6.05% | | Crude ($/barrel) | 111.79 | 2.23 | 2.04% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on May 22, 2014
*BSE Sensex as on May 23, 2014 | |
Impact 
When equity markets are up as they are now, unlisted companies and mutual fund houses get excited. They strike while the iron is hot. Unlisted companies go listed by launching Initial Public Offers (IPOs) and mutual funds come up with New Fund Offers (NFOs). So they make hay when the sun shine and induce investors to invest when there's exuberance and market seems rather stretched.
In 2013 when markets were shaky, only 3 major IPOs hit the street. While, in 2011 when markets were scaling up, promoters of as many as 37 companies diluted their stake and made way for public offers. PersonalFN has observed that there has been a practice of promoters to price IPOs aggressively, especially when the sentiments are positive. So, often they fail to justify valuations and thus are overvalued. And what is the result? When markets fall, shares of such companies get dumped. None other than investors lose their money when markets fall subsequently.
It is noteworthy that, in January 2013, the chairman of Securities and Exchange Board of India (SEBI) talked about this. "Pricing of IPO in this country has been an issue. In the last three years, of the issues that have come about two-thirds are trading at a price below their issue price even after adjusting for the general decline in the market. Again and again, we are finding that there is lack of transparency in pricing," he said then, and contemplated to introduce safety net mechanism. There was a discussion paper floated on safety net mechanism for investors. However, the idea of mandatory safety net was casted off later. And now, in place of that, SEBI is planning to introduce a new concept of 'stabilising agents' for newly listed companies.
So what are 'stabilising agents'?
Under this mechanism, a company appoints a 'stabilising agent' - who is a broker or investment banker, who performs the activity of supporting secondary market price by transacting in such stocks through open market for upto six months from the date of issue.
How would this happen?
Suppose a company issues shares for Rs 100, stabilising agent would have to ensure that the share price remains at least Rs 100. The broker or the investment banker would buy shares to support prices if it sees them falling. This may continue for a stipulated time period which may be upto six months from date of issue.
PersonalFN is of the view that, the concept of stabilising agent may go down well with investors as they are at least assured that they will have an comfortable exit window if they later feel that they shouldn't have invested in the IPO. The concept of a 'stabilising agent' may provide them hedge against falling prices. Moreover, making issuer responsible for supporting stock prices post-IPO may discourage issuers from pricing IPOs unjustly high. SEBI is keen on reviving IPO market. This may help the regulator in achieving this objective.
Nonetheless, one has to be cautious while subscribing to IPOs and even NFOs. It is imperative to hold stocks or mutual fund schemes, which can add substantial value to your portfolio and can enable it to compound well. Thus PersonalFN is of the view that, while in the short-term share prices (or even NAV of mutual funds) may fall, you should not be deterred if it commands long-term value.
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Impact 
Mid and small cap oriented funds can't become your core holdings, unless you have an appetite for very high risk and want to accelerate faster in your journey of wealth creation. You see, mid and small cap funds are more volatile in comparison to large cap funds, but in bull phases of the equity market, they tend to most often outperform large cap oriented funds.
Over last one year equity market has been strong, and the victory of BJP-led NDA has further boosted the investor sentiments. S&P BSE Sensex has generated about 20% returns over last one year. While the S&P BSE Mid Cap and S&P BSE Small Cap during the same time period, have delivered about 23% and 39% returns respectively. This indicates that mid caps and small caps were in demand.
At present, valuations in mid cap are cheaper than those in the large cap domain. However, many mid and small cap stocks have run up substantially. At this juncture you must be asking yourself, "What should I do with my midcap oriented funds?"
PersonalFN believes, although valuations in mid and small caps are cheaper than those in the large cap space, mid caps have gone up substantially in short span of time. Thus, correction in this space cannot be ruled out now. On trail earnings basis, S&P BSE Sensex currently trades at nearly 18X multiple, while S&P BSE Mid Cap trades at about 11X multiple on trail earnings basis. This suggests that if economy recovers and NDA government delivers good performance, markets may continue to rally and midcaps may continue to do well. Having said this, if market descends taking cognisance of macroeconomic scenario, mid cap may fall more than large caps, since they have already rallied a lot.
What should you do now?
PersonalFN believes, whether you should sell your midcap fund or book profits should not be decided without revisiting your entire investment portfolio. PersonalFN has been recommending that, you should look at your asset allocation first, before taking any action pertaining to your investments. Risk profile plays a big role in deciding your asset allocation. Ideally, asset allocation takes into consideration factors such as your income, your financial goals, your risk appetite, years left in achieving financial goals and earning span left, among others. Therefore, if your mid cap fund has breached the range you had set for it in your asset allocation, it's a time to bring it back to the initial level. Furthermore, if you are nearing your goals, try to get out of mid cap focused funds first as they are bound to be volatile. Likewise, those who want to cut down their risk appetite due to change in financial conditions should sell mid cap oriented funds now. If your mid cap fund has severely underperformed in the current market rally, you may replace it with a more consistent fund.
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Free Guide: The Ultimate Guide to Successful Equity Investing
The turbulent times encountered by equities over the past few years has sent shiver down the spine of many.
While many investors seem to have lost their faith in equities, those who have ignored fundamentals of investing, have been let down rather badly!
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Impact
Stocks of Public Sector Undertakings (PSUs) took a hit under UPA-2, especially over a last few years. Apart from scams, policy paralysis had affected their performance. Governance related issues have always raised doubts about functioning of PSUs. The general downturn also impacted PSUs negatively. However, since dates of 16th Lok Sabha elections were announced, PSU stocks started going up. Thus mutual funds investing in PSU theme have also made a strong comeback.
So what has changed so drastically for them?
The Stunning victory of NDA at Lok Sabha elections was the pinnacle of Modi Wave that took the whole nation by storm. It seems that Modi wave lifted the sentiment of equity markets. S&P BSE 200 has gone up about 17% from the day of announcement of dates of Lok Sabha elections (i.e. from March 05, 2014). However, you would be surprised to know that S&P BSE PSU went up massive 45.7% during this period. So it means, investors have been more bullish on public sector companies than other companies.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
The voters in India, the world's largest democracy, have given a decisive mandate to the BJP led NDA. The BJP alone conquered over +272 seats and the NDA as whole over 300, in 2014 Lok Sabha elections. With Mr Narendra Modi being projected by the NDA as its prime ministerial candidate, people voted with confidence, hoping a change amid time when corruption has risen and several scams unfolded during the tenure of UPA. So now that there is a stable Government at the centre with Mr Narendra Modi soon to be sworn in as Prime Minister of India, let us evaluate how gold as an asset class will perform going forward.
You see, so far over the last half-a-decade, with uncertainty looming around in the domestic and global economy, gold prices have scaled up and have remained elevated. But of late some corrective move is seen.
Gold got bold!
Data from May 16, 2009 to May 16, 2014
(Source: ACE MF, PersonalFN Research)
There is hope building on the NDA, that the country would witness sunny days with better structuring of policies, implementation, better infrastructure - which all could aid in clocking better economic growth and in turn build confidence in the economy.
But here's why gold prices may not be impacted much...
To read more about this news and the view of PersonalFN over it, please click here.
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- Withdrawing money from a bank ATM is a routine activity these days. However, many people still don't use ATMs for various reasons, including physical disabilities. The Reserve Bank of India (RBI) has been trying to give opportunities to all such people to avail ATM facility and have easy and fast access to banking services. RBI has directed banks that, all new ATMS should be made talking ATMs with Braille keypads, for which 1st July 2014 has been set as a deadline. Moreover, RBI wants banks to set a roadmap to convert all existing ATMs in talking ATMs having Braille Keypads.
RBI has also asked banks to provide magnifying glasses in all bank branches so that even people with low vision can perform bank transactions with ease. It would be mandatory for banks to display a notice of availability of magnifying glass.
PersonalFN is of the view that, new initiatives taken by RBI would make banking easier for a large section of society. Those who are unable to have access to many banking services because of physical disabilities or may on account of other constraints, would now find it easy to transact via ATMs.
It is a right move, only that banks would have to spend more on establishing necessary infrastructure which may be burden for some. However, better consumer experience may be a positive for them in the long run.
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Hedge: Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
(Source: Investopedia)
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Quote : "The minute you get away from the fundamentals - whether it's proper technique, work ethic, or mental preparation - the bottom can fall out of your game." - Michael Jordan
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