  |
| December 13, 2013 |
|
|
|
|
|
| Weekly Facts |
|
Close |
Change |
%Change |
| BSE Sensex* |
20,715.58 |
(280.9) |
-1.34% |
| Re/US$ |
61.83 |
(0.1) |
-0.10% |
| Gold Rs/10g |
30,430.00 |
(395.0) |
-1.28% |
| Crude ($/barrel) |
109.30 |
(2.3) |
-2.09% |
| FD Rates (1-Yr) |
8.00% - 9.00% |
Weekly change as on December 12, 2013
*BSE Sensex as on December 13, 2013
|
|
Impact 
Happy days are here again for mutual fund houses. As the markets are hovering near their peak; mutual fund houses are trying to capitalise on the upbeat market sentiment. After a dry spell of 2012, New Fund Offers (NFOs) are back in vogue.
Wise investors would want to invest at lower level and exit at higher level. But in reality, mutual funds get more money at market highs than at troughs. New Fund Offers (NFOs) recorded a decade low in 2012 as mutual fund industry launched only about 8 equity oriented funds which gathered about Rs 500 crore. This year so far, around 14 new equity oriented funds have been launched amassing more than Rs 1,500 crore. Out of 14 funds that have been launched this year, 6 are Rajiv Gandhi Equity Savings Schemes (RGESS) while 4 are close ended equity schemes. Along with new fund houses, some well-established fund houses such as Reliance Mutual Fund, IDFC Mutual Fund, Birla Sun Life Mutual Fund and ICICI Prudential Mutual Fund too have launched new funds.
PersonalFN is of the view that, launching a new fund to capitalise on blissful market sentiment denotes opportunistic nature of fund houses. PersonalFN takes a note of such developments and rates them negatively. Further, PersonalFN also doubts the effectiveness of close ended strategy. One shouldn't forget than NFO mania in 2006 and 2007 gave hardly any rewards to investors. PersonalFN believes investors should invest in those funds which follow strict investment systems and processes and have a proven track record.
|
Impact
There have been instances where stock brokers carried out transactions in the accounts of their clients without having sought any prior consent. This has cost a pretty penny to investors. With an aim of curbing such practices, Securities and Exchange Board of India (SEBI) has been mulling over a plan to make it mandatory for brokers to maintain voice records. Brokers are opposing the idea as they believe it would increase their costs significantly. Association of National Exchanges Members of India (ANMI) expressed its discomfort with this move. According to it, about 90% of the industry is made up of small brokers and following the proposed system would make it extremely difficult for them to bear these costs. Broking industry has been going through one of the most difficult phases and additional cost burden may be a cause of concern for them.
PersonalFN is of the view that although this is a welcome move; it may have some demerits too. If majority of brokers find it unviable to absorb the cost, they might pass it on to clients by increasing brokerages. Also, calls made through cell phones may not be recorded due to which brokers would have an additional task of seeking confirmation from clients. PersonalFN is of the view that, lower brokerages shouldn't be the only parameter for investors while selecting a broker. Track record of the broker should also be considered.
|
Impact
Markets have been scaling to new highs but many investors have become worried about valuations as they might soon start looking stretched at broader level. Those pockets of the market which have decent valuations are still attracting investors. Take example of Public sector Undertakings (PSUs). For a number of reasons, PSU stocks were underperforming markets over last couple of years, however; in the recent market rally they have outperformed S&P BSE Sensex.
S&P BSE Sensex vs. S&P BSE PSU
NAV Data As on December 10, 2013
[Source: Ministry of Finance (Dept. of Revenue), PersonalFN Research)
As depicted in the graph above, S&P BSE PSU has outperformed S&P BSE Sensex over last 3 months. The recent outperformance of PSUs may not be substantial but it is noteworthy considering their sustained underperformance in the past. Relatively cheap valuations and higher dividend yields might have been the primary reasons for the re-founded investor's interest in PSU stocks. Performance of dedicated PSU funds too has been in line with the performance of PSU index. PSU funds have managed to do better than S&P BSE Sensex over last 3 months.
To read more about this news and the view of PersonalFN over it, please click here.
|
Impact
In stock markets, sailing along the tide is perceived to be gratifying, as investing themes /sectors which are in favour, usually aids in accelerating the pace of wealth creation. But this approach to investing often results in buying expensive, especially when the markets are in an uptrend and thus reduces the margin of safety for investing. It is often seen that during the downtrend of the equity markets, the themes which were once favoured, lose their appeal and investments falter.
Thus to add a trait of value investing to the stock picking approach, contra investing was found. You see, under contra investing, the fund manager focuses on investing against the prevailing market trend in assets that are performing poorly, and selling them when they perform well. The approach hubs on identifying neglected stocks that are undervalued today (trading at lower P/E multiple or P/BV), but have a potential of growing in the long-term. Hence broadly if we observe, contra investing is a subset of value investing. But a noteworthy point is that contra investing is far more complex than value investing, as the objective is picking stocks which are dumped by the market (available at a cheap price) in the short-term, but nonetheless have the potential to gain in the long-term when the market recognises its true potential. Hence by doing so, contra investing aims at sailing against the tide by betting on "out of favour" stocks / sectors, in an attempt to gain in the long-term.
To read more about this news and the view of PersonalFN over it, please click here.
|
- Recently the LPG prices were hiked by Rs 3.46 per cylinder since the commission paid to dealers was increased by about 9%. It may have some impact on retail inflation as eating out may cost you more. To pacify households, the government has already agreed to provide 9 cylinders (per family / per year) at a subsidised rate. But the benefit would also be capped since the subsidy payment received by households may form a part of their taxable income.
PersonalFN is of the view that although this might be disheartening for those who have higher taxable income, this move won't affect the poor whose income is not taxable. Taxing subsidy would be an indirect way to make discrimination in subsidy payment based on income level. From the legal perspective, all revenue subsidies can be charged to tax. But it remains to be seen whether this proposal is implemented in deed.
|
Value Trap: "A stock that appears to be cheap because the stock has been trading at low multiples of earnings, cash flow or book value for an extended time period. Stock traps attract investors who are looking for a bargain because these stocks are inexpensive. The trap springs when investors buy into the company at low prices and the stock never improves. Trading that occurs at low multiples of earnings, cash flow or book value for long periods of time might indicate that the company or the entire sector is in trouble, and that stock prices may not move higher."
(Source: Investopedia)
|
Quote : "In the short run, the market is a voting machine, but in the long run it is a weighing machine" - Ben Graham
|
|
|
|
© Quantum Information Services Pvt. Ltd. All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
|