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| October 10, 2014 |
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
26,297.38 |
-270.61 |
-1.02% |
| Re/US$ |
61.06 |
0.7 |
1.13% |
| Gold Rs/10g |
27,250.00 |
150 |
0.55% |
| Crude ($/barrel) |
91.04 |
-4.38 |
-4.59% |
| FD Rates (1-Yr) |
8.00% - 9.00% |
Weekly change as on on October 09, 2014
*BSE Sensex as on October 10, 2014
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Impact 
When the stock market is rallying ferociously, all targets given by “so called” experts look achievable. A cautious investor is often ridiculed during bull phases. However, it is imperative that, you should keep your eyes wide open and analyse the situation carefully before you commit any money to equity assets, especially when markets have rallied a lot already.
The current rally that started about a year back seems to be losing steam now. Foreign Institutional Investors (FIIs) who have been betting aggressively on India have started exiting silently. Although there inflows have not turned negative just yet, buying activity has certainly reduced over last 2 months. However, the sentiment is so strong at present that, a little impact is being felt on the market movement for now. If FII flows ebb further then markets may come under severe pressure.
Are FIIs losing faith in India story?
(Source: ACE MF, PersonalFN Research)
PersonalFN is of the view that, considering expensive valuations and moderate improvements in the fundamentals, markets would now have the performance pressure. In other words, markets have already factored in possible positive developments, and unless Government delivers on its promises and corporate profits rise as expected, markets would face the downside pressure.
What investors should do now?
PersonalFN believes investors need not refrain from investing in equity assets but would be better off if they stagger their investments. You should invest in equity oriented mutual funds if you don’t have time to track your investments or lack expertise needed for equity investing. Systematic Investment Plans (SIPs) offered by the mutual funds give you a chance to deal effectively with stock market volatility.
Indian markets heavily depend on inflow of foreign capital. Any sudden outflow on account of global or a domestic event may push markets down. It remains to be seen how Indian markets adjust to possible uneven FII flows when Federal Reserve (Fed) starts hiking rates in the U.S. Falling crude oil and other commodity prices may help India reduce its import bill and save forex reserves. As a result rupee may benefit. Food inflation still remains a worry and capex cycle is yet to take off. Recovery in manufacturing is still very fragile. FIIs my closely track all these developments.
PersonalFN has time and again said that, rather than following FIIs investors should focus on their financial goals. Having said this, you also need to avoid following market momentum.
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Impact
Monetary policy actions have a significant impact on economic progress of a country. Effective monetary policy can prop the economy in bad times and constrain it when it is overheated. In India, the RBI has been historically setting inflation targets and taking monetary policy actions to achieve them. In this sense, the central bank has enjoyed autonomy so far. The monetary policy framework has evolved over a period of time. Efforts have been made to make it more transparent and effective. Taking one step forward, India is all set to adopt new policy framework. Under the new setup, RBI may now just be given a role of achieving inflation target. The Government may set the inflation target now onwards.
In the budget 2014-15, the finance minister had communicated the intentions of the Government to bring about reforms in the monetary policy formulation as well as in implementation. The Government intends to introduce changes, with an aim of effectively addressing economic challenges by having a responsive monetary policy system.
What is going to change?
RBI and the finance ministry are expected to sign a formal agreement to unveil a new monetary policy framework. With this, the monetary policy formulation would be done by the eight-member committee and RBI would be given a task of implementing it. The new policy framework is based on recommendations of Urjit Patel Committee and B.N. Srikrishna committee. The Monetary Policy Committee (MPC) would have 8 members including governor and deputy governor of RBI, five outside members and a nominee of the Government.
PersonalFN is of the view that, restructuring of monetary policy framework may prove to be a big positive for India, as it makes the Government as well as RBI more accountable for their decisions. Having said this, panel based approach would eliminate the risk associated with having just one person (the governor) taking policy decision. PersonalFN believes, new monetary policy framework may be flexible to deal with complex economic problems.
At present, India faces a problem persistently high inflation and RBI has made it clear that, reining in escalating inflation remains the top priority. Now the onus of deciding the appropriate target lies on the Government. The dialog between the Government and RBI would be crucial to the success of the new framework.
Do you think the new framework would make the monetary policy more effective? Share your views
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Impact 
Most of you might be feeling confident about the current market rally. If someone asks you whether this rally is sustainable, you may answer affirmatively. The sentiment is strong and knowing the pulse of investors, mutual fund houses are launching New Fund Offers (NFOs). Response of investors has been robust to these NFOs. This is surprising that investors feel confident about markets when valuations are expensive and they hold back when valuations are really attractive. Those who are investing now, expect a strong rebound in the performance of Indian companies. Experts are echoing optimism and raising their estimates on earnings of some of India’s largest companies. PersonalFN tells you why you shouldn’t you get carried away by bullish estimates.
Earnings upgrade…
As reported by Business Standard dated October 06, 2014, based on expectations of analysts polled by Bloomberg, Sensex companies may report healthy growth in the July-September quarter of the current fiscal. Cyclical sectors such as Automobile and Banking are expected to record more than 20% jump in profits as compared to that reported last year during the same timeframe. Similarly, export oriented sectors such as Information Technology and Pharmaceuticals are likely to register above 15% growth in profits during the 2nd quarter of Financial Year (FY) 2014-15.
Constituents of S&P BSE Sensex excluding energy companies are expected to record, 10.9% rise in revenues and 16.4% increase in profits on Year-on-Year basis. Positive factors that may help companies report higher profits include;
To read more about this and PersonalFN’s views on it, please click here.
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Impact
Many of you might have missed to notice that S&P BSE Sensex recently touched its two month low. Foreign Institutional Investors (FIIs) have started pulling out money. This may just be on account of profit booking but such developments shouldn't be ignored at all. Especially, when there is great optimism among investors. The market rally that happened over last one year has now started attracting retail investors. More and more people are willingly putting money into equity markets. Assets under Management (AUM) of mutual funds reached to the all-time high mark in September. PersonalFN shares its view on current market scenario and also tells you how you can manage your finances wisely.
Rapid rise in AUM...
Led by robust inflows in equity oriented funds and in the debt funds with shorter maturities, AUM of mutual funds touched Rs 10.59 lakh crore by the end of September 2014. Mutual fund AUM had crossed the Rs 10-lakh crore mark for the first time in May this year. However, it is noteworthy that not all mutual funds are the beneficiaries. Large mutual funds are getting larger and industry operations are highly skewed in favour of top 5 mutual funds. Top 5 mutual funds are managing about 55% of the total AUM.
One Trillion Club...
As per the data published by Financial Express on October 08, 2014
(Source: Financial Express, PersonalFN Research)
Big push from equity funds... AUM of equity oriented funds registered a massive increase of Rs 55,381 crore in the second quarter of Financial Year (FY) 2014-15. This has been the highest rise in any quarter after the one ended on September 30, 2010. Equity assets of mutual funds amounted to Rs 2.91 lakh crore on an average. Upbeat sentiment and rising markets have encouraged retail investors to bet on equities. Birla Sun Life Mutual Fund has clinched the fourth slot as far as size of AUM is concerned. The fund house has launched a number of New Fund Offers in the recent past. The same is true with ICICI Prudential Mutual Fund.
To read more about this and PersonalFN’s views on it, please click here.
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- While it is expected that the Indian economy may do well in coming quarters, fragile credit growth in the first 6 months of Financial Year (FY) 2014-15 may raise doubts. However, it might come to your surprise that, credit growth is claimed to be cooling not because of lack of demand for fresh loans, but because of tremendous pressure of vigilance department.
Following some high profile cases of frauds reported by Indian banks, Central Vigilance Commission (CVC) has been keeping a strong hold on Indian banks. It has sent out 6 circulars to banks over last 3 months. The commission has been guiding banks on various topics such as credit sanctions, exposure norms and fraud detection among others. Bankers claim that, due to stringent vigilance, it has become impossible for them to disburse loans at a normal pace. In first 6 months of FY 2014-15 loan disbursals grew at just 1%. In September credit growth fell to a multi-year low.
Having said this, it is equally true that, there is not much of a demand for credit from companies with strong balance sheets and sound fundamentals. Companies that have been asking for high credit are largely those with weaker balances sheets.
PersonalFN is of the view that, it is important to have a strong vigilance system especially considering a high incidence of scams reported by public sector banks. Having said this, a balance should be struck. Banking system is dynamic and practicalities shouldn’t be always discouraged. PersonalFN is of the view that, banks need to improve their credit assessment processes and ensure that, Non-Performing Assets (NPAs) are minimised.
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Momentum: The rate of acceleration of a security's price or volume. The idea of momentum in securities is that their price is more likely to keep moving in the same direction than to change directions.
(Source: Investopedia)
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Quote : "More money has been lost trying to anticipate and protect from corrections than actually in them" - Peter Lynch
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