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| October 23, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 27,470.81 | 256.21 | 0.94% | | Re/US $ | 65.13 | -0.30 | -0.46% | | Gold Rs/10g | 26,950.00 | -15.00 | -0.06% | | Crude ($/barrel) | 45.94 | -1.89 | -3.95% | | F.D. Rates (1-Yr) | 6.25% - 8.00% | Weekly changes as on October 22, 2015
*S&P BSE Sensex value as on October 23, 2015 |
Impact 
Call it madness or revolution but e-commerce is growing leaps and bounds in India. Every business wants to have 'e-presence' these days. For some, this has been an advantage, while for others it is compulsion. When the entire world is sailing in one direction, you probably can't choose the opposite route if you want to do business successfully.
Apart from providing insta-convenience of purchasing and home-comfort of receiving goods and services, e-Commerce businesses in India are equally popular for the extensive discounts they offer to buyers. The slogan of this e-commerce boom is—reduce distribution costs, reach-out directly to the consumer and pass on the cost-saving margins to them.
Mutual funds are soon to join the bandwagon...read on
Securities and Exchange Board of India (SEBI) may open up the e-commerce route to mutual funds. SEBI is of the opinion that mutual funds are lagging behind other industries in the implementation of electronic channels for selling their financial products. Although the 'direct route' is already available to mutual fund investors; it is not as widely used as one would expect. As a result, the mutual fund industry still depends predominantly on the distributors' model to disseminate their products. This has long been a reason for the "high-cost" structure of the industry. Unsustainable costs and less than average growth in Assets under Management (AUM) have forced several fund houses to exit.
It is believed that cost reductions and simplified procedures to buy mutual funds may quicken industry growth.
One more attempt of SEBI to lighten the cost structure
The capital market regulator appointed a committee under the chairmanship of Mr. Nilekani—the erstwhile chairman of Unique Identification Authority of India (UIDAI). The committee was tasked with suggesting ways mutual funds could reduce costs using modern technology. Recently, SEBI Chief, Mr. U.K Sinha met Mr. Nandan Nilekani to know the committee's findings and learn about the various options available. Top honchos of e-commerce companies in India were also present for the meeting.
If SEBI clears the way for mutual fund houses to tie up with e-commerce companies, you would also be able to buy mutual funds on your favourite websites; just like you buy mobile phones and other gadgets/electronic stuff. Before that happens in deed, there are several hurdles to clear. They include:
- Apart from, in person verification of Know Your Customer (KYC), SEBI will have to permit e-KYCs as well.
- Along with wet signatures, e-signatures should also be allowed.
What's impact if mutual funds take e-commerce route?
- In addition to a direct plan and regular plan, mutual funds will have to offer another plan under each scheme. In other words, an e-Commerce option could quote at a different net asset value compared to the direct plan and the regular plan.
- Costs in the e-commerce route would be higher than those involved in direct route, but would be lower than those charged in regular plans.
A few in the industry are optimistic about the development, but others are skeptical that a third option may baffle investors.
PersonalFN is of the view that more than costs, it's trust that influences people to invest. It wouldn't be an exaggeration to say many people still don't even know whether the industry is operating on high or low cost structure. What's most important is that the right product is offered to right investor using the right medium. Here, 'right' may sound relative but this is exactly where mutual fund houses will have to bridge the gaps. They need to identify what's 'right' for their investors.
Mutual funds should rethink about launching New Fund Offers (NFOs) without much class distinction from existing products. They ought to reconsider their current strategy of maximizing sales through commission-based distribution channels.
Investor education is the only way out. Please remember, before people buy a smart phone from an "e-tailer", they often know what brand and quality they are investing in. Unless the mutual fund houses create conducive environment for investors, the e-Commerce route may make little difference to their current state.
Do you think selling their products through e-commerce route may help mutual funds grow faster? Share your views here.
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Impact
There's some good news for the investors of JP Morgan Mutual Fund.
The Fund house invested in debt securities of Amtek Auto through two of its schemes, JPMorgan India Short Term Income Fund and JPMorgan India Treasury Fund. When Amtek Auto failed to honour the repayment of its loans, the schemes suffered a huge loss. Now, Amtek is considering organizing the necessary arrangements for discharging its dues to the fund house.
Business Standard dated October 19, 2015 has published a few excerpts of the interview of Chairman of Amtek Auto. In the interview he said, "We are talking to JPMorgan. We are together working to reach a solution. Within the next two weeks, we hope the matter will be resolved. There will be a solution to the satisfaction of JPMorgan and there will be no default."
Wait a minute. The company is not talking about paying off entire outstanding of Rs 800 crore. The chairman in his interview to Business Standard further said, "payment of the balance Rs 600 crore, most of which is held by banks, will go through a rollover process. As a part of the composite process started for other repayment obligations, banks will also realign this amount with the cash flows."
To understand this, here are the details of the case history
In 2010, Amtek Auto had collected Rs 800 crore by issuing Non-Convertible Debentures (NCDs) at an interest rate of 10.25%. This debt was due for repayment in September, and the company for the lack of money. Out of Rs 800 crore, JP Morgan holds NCDs worth Rs 200 crore and various other banks hold the rest.
So, now the company is talking about the repayment of just 25% of its dues that too, to a private mutual fund. Banks will just have to assume that Amtek can generate adequate cash flows to be able to repay them.
It is intriguing to know what makes Amtek want to pay JP Morgan off first. True, it is public money that is lying with the fund house, but ain't that the source for bank deposits too? However, it is unclear whether banks invested their profits or channelized deposits. Whatever might be the case, such a selective approach to debt-repayment may send the wrong message. Has this got anything to do with the negotiating power of the lender? These questions may remain unanswerable with certitude.
The investors of the JP Morgan schemes are most likely affected by this whole episode of default, exposed to mental trauma, and may have possibly concluded, "Debt funds are not safe". Adding further, PersonalFN believes when investing in company fixed deposits, think about safety first, as opposed to looking at returns only.
Do you think changing regulatory environment for mutual funds would help attract more investors to them? Share your views here.
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Impact
You may call this a materialistic world but you also have to accept the fact that money spins it around. Like air and water, money doesn't recognise any boundaries either. Globalisation has allowed free movement of capital, and capital chases economic growth.
India's economic growth records over 7% even today, is a rare phenomenon, considering that other major economies struggle to stay in the green. Naturally, India is the blue-eyed boy of Foreign Institutional Investors (FIIs) and they are the mainstay of Indian markets. The participation of Indian investors in their own market is abysmally low and makes the Indian markets vulnerable to sudden outflows of FIIs.
At present, the Indian markets look sluggish because movement of the leading indices is restricted to a narrow range. Valuations are expensive and rapid growth is out of sight. In such a scenario, FIIs might have even started exiting Indian markets inconspicuously. Should you follow suit?
Before you decide upon it, we first need to look at what the current trend of FII flows is.
FIIs—Catalyst to Market Movement
 | | Year | FII Inflows /
Outflows in Indian Equity
Markets (Rs in Crore) | | 2010 | 133,266 | | 2011 | -2,714 | | 2012 | 128,360 | | 2013 | 113,136 | | 2014 | 97,054 | | 2015# | 24,888 | | #Year till date
Data as on October 19, 2015
(Source: NSDL, ACE MF, PersonalFN Research)
FIIs invest with expectations and when disappointed with the developments on field, they shun companies, sectors, and even markets. Need proof? Markets reached their lows in 2011. As depicted by the movement of S&P BSE Sensex, one of India's most widely tracked indices, markets kept rising thereafter. However, the incremental investments of FIIs continued to dip subsequently.
FIIs went gaga over Indian equities when valuations were low and there was hope that change in the then political scenario would help India speed up reforms, eventually resulting in higher economic growth. These were India specific factors whereas global factors such as loose monetary policies in developed markets and stunted growth in other major economies provided a helping hand to Indian markets.
To know more about this and PersonalFN's views over it, please click here.
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Impact
The Judiciary system is one of the four pillars of democracy. Citizens of a democratic country are bound by the law. If you have any experience in dealing with court cases, you know how important it is to put forward the details of your case in a neat manner and in legally accepted parlance to enhance your chances of winning the case. However, sometimes it can happen that the party you are dealing with has done nothing wrong, legally, but on moral grounds may have a lot to answer. The best way to deal with it is gently/diplomatically yet smartly. Confused? The State Bank of India (SBI) showed the way recently.
To read more about this news and our views, please click here.
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- The rapid escalation of prices in pulses is making headlines these days. If you think that it's only the expectation of a lower output due to insufficient rains, you could be in for a terrible shock.
As reported by the Business Line dated October 21, 2015, the Centre has clamped down on hoarders, recovering 36,000 tonnes of pulses. The states of Maharashtra, Chhattisgarh, Telangana, Madhya Pradesh, and Haryana have reported higher cases of hoarding.
The Government is now blaming 10 states that have failed in keeping checks on hoarders and imposing the stock limits strictly.
The common man can only keep guessing why this action wasn't taken when prices were shooting up at 1% every day in September. Delayed action may serve little purpose. Hoarders may already have managed to get the prices to their desired levels.
"Acche Din" has risen for speculators, traders, and hoarders. No respite for the common man. |
Expansionary policy: A macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflation (price increases). One form of expansionary policy is fiscal policy, which comes in the form of tax cuts, rebates and increased government spending. Expansionary policies can also come from central banks, which focus on increasing the money supply in the economy.
(Source: Investopedia)
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Quote : "A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem" - Warren Buffett
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