  | | November 01, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 21,196.81 | 513.3 | 2.48% | | Re/US$ | 61.50 | (0.0) | -0.05% | | Gold Rs/10g | 30,680.00 | (1,105.0) | -3.48% | | Crude ($/barrel) | 110.06 | 2.1 | 1.90% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on October 31, 2013
*BSE Sensex as on November 01, 2013 | |
Impact 
Retail participation in equity markets has fallen to 10 year low; as equity markets disappointed many first-time investors. In the euphoric market rally of 2006-07 many investors bought aggressively. The primary reason for their generating poor returns has been their disregard to the then expensive market valuation. Such frenzy buying is often seen in real estate as many believe that real estate prices in India don't fall once they go up and continue to go up even in the future.
However, this may not hold true in one of India's most chased after property markets, Mumbai. Property prices went up several times in the city and suburbs during last 6 years. Moreover, prices resisted the downtrend witnessed in other property markets post Lehman collapse in 2008. Aspiration to buy property in the financial capital of the country and lower availability of properties with clear titles pushed prices higher. Delay in getting clearances and higher interest cost in 2010-11 and 2011-12 pushed property prices upwards.
But things seem to have changed now. Property sales registrations in Mumbai have fallen by about 8.6% this September to record first monthly decline in 2013. The inventory in the property market of Mumbai has been close to 48 months which is extremely high as against the accepted standard of about 14-15 months.
Stagnating property prices
(Source: National Housing Bank, PersonalFN Research)
As depicted in the graph above, after rising steadily through Financial Year (FY) 2011-12 and FY 2012-13; property prices in Mumbai have become stagnant now. NHB residex which tracks the prices of residential properties in India recorded a marginal fall in the 1st quarter of the current fiscal. Unaffordable property prices, resistance of developers to lower prices, higher inventory level and about 30% rise in new launches during first-six months of 2013 may put even more pressure on property prices. Lower demand and high inventory might leave no option to developers but to reduce rates. Higher interest cost and huge burden of debt is adversely affecting them.
PersonalFN believes although property prices have fallen in April-June quarter and new registrations have been lower in September, price-decline in Mumbai property market may not be good enough for you to consider buying a residential property considering the huge unsold inventory and the kind of appreciation we have seen in past few years. However, those who are yet to buy their first dream home shouldn't wait for deep correction as it may not come. Affordability should be considered though. Right planning helps you make intelligent use of your resources in achieving your life goals.
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Impact
Mutual funds are badly affected with turbulent markets. They are facing a problem of continuous redemptions in equity oriented funds. Investors are exiting as they are disappointed with the market movement. Garnering new business has become even more difficult for mutual fund houses since they depended on narrow base of investors for long time. As per data released by Association of Mutual Funds in India (AMFI), top 5 cities generate 74% of business for mutual funds. Although market volatility is one reason for investors losing faith in equity as an asset class; lack of awareness is another major reason.
There is enough evidence that equity as an asset class is beneficial to long term investors but this has not been effectively conveyed to masses. To bring investors back to mutual funds and increase the reach; Securities and Exchange Board of India (SEBI) has asked mutual funds to adopt districts. SEBI believes if mutual funds reach out to remote areas, penetration of financial products would increase.
In the view of PersonalFN while SEBI wants MFs widen their reach by adopting districts, it is vital to evaluate the awareness of mutual funds in rural areas. Some research reveals that many of the individuals in rural districts prefer gold, land and FDs as their investment avenues. This endeavour of SEBI may not yield the desired fruits, if investor education is first not scaled up, especially in the area of investing in mutual funds.
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Impact
The exuberance of the equity markets seen prior to the emergence of the U.S. sub-prime mortgage crisis had attracted many to venture into equity broking business. Even the old-timers in the business spread their wings and expanded. But a lot has changed after the emergence of U.S. sub-prime mortgage crisis, Lehman Brothers bankruptcy, debt-crisis in the Euro zone; which all led to a state of uncertainty and brought in turbulence for the equity markets.
Investors who went all went gung-ho once about investing in equities and invested near the top of the Indian equity market (at 21,000 levels in 2008), have now become risk averse. This is because most investors have not made money in the past 5 years. And although the Indian equity markets did near the earlier top of the markets, most investors - especially the retails ones - aren't enthused and their interest in direct equities is waning.
In this backdrop, the Indian broking business is experiencing stressful times. According to the data available with the Securities and Exchange Board of India (SEBI), a total of 487 brokers have shut shop thus far in 2013-14. So, on an average, three brokers have called it quits each day since the financial year that started April 1. This has brought in a period of consolidation in the Indian broking business. Recently, even the bigger player such as HSBC India and India Infoline announced a shutdown of their retail broking business.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
You must be swiping your card whenever you shop or go out for dining. Although there is a growing trend of settling bills through card payments or e-transfers, the penetration of e-payment systems is still very low in India. People prefer to pay by cheque. As per RBI reports, this traditional mode of payment constitutes 82% of the total value of transactions even today. Cash payment is very popular in retail transactions although its contribution in high value transactions has reduced over time. Due to poor infrastructure and huge under- banked population, acceptance for electronic route for making payments is low among masses. Many people are reluctant to choose electronic route for the safety reasons. As technology is getting better, cases of online frauds are also becoming frequent. But soon this might change. National Payments Corporation of India (NPCI) has been mulling over providing insurance cover for online transactions. NPCI handles, consolidates and integrates the multiple systems of retail payments in India.
To read more about this news and the view of PersonalFN over it, please click here.
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- These days, social media websites such as Facebook (FB), Twitter or cross-platform mobile messengers such as Whatsapp are being used to promote investment schemes. It has been observed that these new modes of communication are used to lure investors in fraudulent collective investment schemes. The concept of crowdfunding is gaining pace with young tech savvy youngsters. SEBI has increased its policing to ensure that people are safeguarded from being victimised by fraudulent collective investment scheme marketed through social media.
PersonalFN is of the view that enhanced vigilance of the regulator may work in favour of investors. Also fraudulent investment schemes promoted using social media may be curbed. It's a welcome move.
- Opening a bank account and applying for a new cell phone connection are few examples of services that require you to undergo tedious paperwork. But soon this may change, especially if other service providers start follow in the footsteps of banks.
The Unique Identification Authority of India (UIDAI) provides a feature which helps people open a bank account without doing any paper work. As of now, Axis bank is the only major bank that allows people to walk in and open an account by providing their Adhaar number only. Others are expected to follow the suit soon.
PersonalFN is of the view that, opening a bank account is a major hurdle in financial inclusion which may be overcome by simplifying the procedures. This would also lead to customer satisfaction as account opening would be faster and hassle free.
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Crowdfunding: Crowdfunding is using, "small amounts of capital from a large number of individuals to finance a new business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out about a new business and attract investors. Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists."
(Source: Investopedia)
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Quote : "The economy depends about as much on economists as the weather does on weather forecasters." - Jean-Paul Kauffmann
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