S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
21,809.80 | -109.99 -0.50%	61.18 | -0.06 -0.10%	30,630.00 | -1000 -3.16%	107.84 | 0.38 0.35%	8.00% - 9.00%

About 8 months ago, many of you might have thought that the Indian Rupee (INR) is in crisis and recovery would be lengthy and moderate if at all it happens. Looking at the pace at which INR was falling against the US Dollar (USD), it wouldn't have been wrong to assume so. However, proving all bears wrong, the Indian currency recovered sharply from the lows it made in August and September last year. INR has already appreciated by around 11% from its lows. From being one of the worst performing currencies, Indian rupee has emerged as one of the best, over last 6 months.
  Indian Rupee- Marching up...

Data as per portfolios disclosed on January 31, 2014.
(Source: AMFI)
Why is INR gaining?
The rupee has been strengthening especially when the other emerging market currencies such as Brazilian Real, South African Rand, Turkish Lira and Argentinean Peso have weakened considerably against USD. Tapering of monetary stimulus in the U.S. was expected to result in capital outflows from emerging markets. There is one thing common among major currencies that have depreciated. They either have weak fundamentals or they are facing a political turbulence or have a combination of both. While Turkey and South Africa face a problem of mounting CAD and delicate political situation; commodity exporting nations face a threat of possibility of a slowdown in China. Currencies of such nations have been hit hard.

However, beating all forecasts to the contrary, INR is going from strength to strength since September. Recovery in INR is mainly attributed to:
 

• Lower Current Account Deficit (CAD)
• Anticipation of a change in the political regime
• Robust capital flows in the Indian economy
   

In the Financial Year (FY) 2013-14, India's CAD is expected to reduce to nearly half. As compared to USD 88 billion recorded in FY13, CAD may come in at USD 40-45 billion in the current fiscal. At 2.2% in FY14, the CAD is expected to touch a 4-year low in India. Gold import curbs paid off. Rupee staged a rally in December when BJP came out with flying colours at state assembly elections conducted in 4 states. As we draw closer to Lok Sabha elections rupee has been gaining further ground. Opinion polls suggest that BJP led NDA is likely to form the Government which has made global investors enthused about Indian capital markets. Robust capital flows are making the Indian currency stronger. Through a special swap facility provided by RBI, banks have already raised nearly USD 34 billion through FCNR (B) accounts. This has helped the country grow its forex reserves. As these three major factors have turned positive, Indian rupee has benefited.

Will the uptrend in the rupee continue?
PersonalFN believes falling current account deficit is definitely a positive but how long the CAD will stay lower is the question. Although, gold imports have reduced substantially, demand for gold is still robust which is giving rise to smuggling activities. It remains to be seen how CAD fares once the gold import restrictions are relaxed. If India still manages to keep CAD under check, rupee is likely to be the beneficiary. Stable government would be a positive for the currency and how the economic growth revives would determine the magnitude of inflows of foreign capital. PersonalFN believes that the rupee may stay strong until these factors turn negative. Rising CAD, political uncertainty and capital outflows would weaken the rupee.

With elections around the corner, SEBI on a vigil

You would be astonished to know that the first Lok Sabha election (1952) had cost the country a little over Rs 10 crore. Since then, cost of conducting elections has skyrocketed. According to the estimates of election commission of India, the exchequer may have to shell out about Rs 3,500 crore in the forthcoming Lok Sabha election. It is noteworthy that, this doesn't include security related expenses as well as the money political parties are likely to spend.

In India, banks are regulated, but unfortunately there is no regulator to oversee political funding. According to Association of Democratic Reforms, nearly 75% of donations had come in cash from unknown donors between 2004-05 and 2011-12. Apart from public donations, political parties are hugely funded by companies. Nexus between Corporate and politics is not unknown. Use of black money in politics is an open secret. Instances of "cash for vote" are not new to India.

To prevent companies and other capital market participants from channelising illicit money to political coffers, Securities and Exchange Board of India (SEBI) has stepped up its surveillance ahead of Lok Sabha elections.

What it has done so far?

• SEBI has initiated action against nearly 500 companies which said to have collected money from investors through unlawful money collection schemes for financing political parties
• Inflows of foreign capital are being closely monitored to prevent money laundering for political funding
• Activities of Politically Exposed Persons (PEPs) are being closely scrutinised
   

Are these actions effective?
The aforesaid actions are in sync with SEBI's efforts to prevent money laundering and terror financing through capital markets. SEBI has also directed officials to run a detailed check on their clients who have links with countries facing international sanctions.

PersonalFN is of the view that actions initiated by SEBI to prevent money laundering for political funding would certainly discourage unscrupulous practices followed by companies for political financing. Also, SEBI has directed stocks exchanges to follow a practice of conducting half yearly internal audits and inspections.

However, the overall impact of such moves would be limited. SEBI may regulate capital markets effectively but its role in scrutinising real estate deals and bullion transactions is extremely limited. PersonalFN believes, more than capital markets, real estate and gold are the primary sources for channeling illicit money into political financing. Investors should avoid investing money in collective investment schemes. It is hardly known to investors as to who is actually utilising funds and for what purpose.

 

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Why have large cap funds failed to generate wealth for you?

"Large cap funds have the ability to weather the unfavourable economic conditions as they constitute companies which have established businesses, stable revenues and a high market share. Quite a few large companies dominate the total market capitalisation of any market. And investors often envice interest in them either directly through stocks or by means of largecap oriented mutual funds. They often perceive large caps to be safe and could provide stability to their portfolio in their endevour of wealth creation.
 
Data as on March 07, 2014
(Source: AMFI)
But have they created wealth for you?
As you may know, the markets witnessed a fall in the early 2013 due to downbeat macroeconomic variables and weak Indian rupee. However, as the year progressed the market mood turned positive in the last 4 months of calendar year 2013. And in the last 1 year, as can be noticed from the chart above, the S&P BSE SENSEX outperformed the S&P BSE 200 Index and the S&P BSE Mid-Cap Index. This reveals that investor sentiments remained positive towards large cap companies during this period.

To read more about this news and the view of PersonalFN over it, please click here.

Are these new measures adequate to curb gold smuggling?

Gold Smuggling was a popular business in 1970s and 80s when importing gold in India was restricted. However, the business lost its lustre in the post liberalisation era, as importing gold officially became easy. But smuggled gold is back in demand again nowadays, due to stringent import restrictions. While Indian Government has been successful in reining in Current Account Deficit (CAD) by slashing gold import bill; it has achieved little success in discouraging smuggling of gold. Over last 3 financial years, smuggling activity of gold has risen about 14 times and has also left behind smuggling of narcotics. As per the estimate of the World Gold Council, around 150-200 tonnes of gold was smuggled annually in India. The official gold demand is pegged at about 900 tonnes. Despite all the curbs, demand for gold has witnessed a rise of nearly 13% in the current fiscal. This has made smuggling a profitable business again. The Government now has tightened the gold import norms further.

What will change now?
At present, any passenger of Indian origin or having a valid passport can bring in upto 1kg of gold by paying applicable duty on such imports. Passengers coming through green channel (those who are not carrying any dutiable goods) can bring jewellery worth (upto 1 lakh) in case of a female passenger while upto Rs 50 thousand in case of a male passenger. This limit however, doesn't include the import of gold bars and coins. With new norms coming in effect:

To read more about this news and the view of PersonalFN over it, please click here.

Retail inflation has come off considerably over last few months. It dropped to 8.10% in February which is a 25-month low. This has been quite close to the target of 8.0% set by RBI which is to be achieved over next 1 year. However, markets are not impressed with the reported fall in the inflation. Neither equity markets advanced on the news nor yields witnessed any significant fall.

Given that hailstorm and unseasonal rainfall has destroyed rabi crop in Maharashtra and Madhya Pradesh there are likely chances that food inflation may go up again. Unseasonal rainfall across northern and western India has already caused fruit and vegetable prices to move up by 10%-15%.RBI would be watchful of all these developments before taking any decision on the policy rates. PersonalFN is of the view that, RBI is unlikely to lower rates in hurry as there are still some upside risks to inflation.

Money Laundering: The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source.

Quote : "Although it's easy to forget sometimes, a share is not a lottery ticket... it's part-ownership of a business." - Peter Lynch