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| March 21, 2014 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
21,753.00 |
-56.8 |
-0.26% |
| Re/US$ |
61.33 |
-0.15 |
-0.25% |
| Gold Rs/10g |
29,970.00 |
-660 |
-2.15% |
| Crude ($/barrel) |
105.77 |
-2.07 |
-1.92% |
| FD Rates (1-Yr) |
8.00% - 9.00% |
Weekly change as on March 20, 2014
*BSE Sensex as on March 21, 2014
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Impact 
In his budget speech, the finance minister had reaffirmed the commitment of the Government to contain fiscal deficit. He stated that the fiscal deficit would be restricted to 4.6% of GDP in the current fiscal. But what he probably did not tell citizens were means for containing the deficit number. In simple terms, fiscal deficit is nothing but excess expenditure of the Government over and above its revenue. Considering underachievement in tax collection and nearly 16% rise in expenditure estimated at the beginning of the fiscal year 2013-14; it seems the actual fiscal deficit number may overshoot not only 4.6% mark but also the initial target of 4.8%.
However, the Government applied various tactics to curb the deficit which include;
- Rolling over subsidy payments of fertiliser and oil marketing companies to next fiscal
- Delaying the payment of export duty refunds
- Holding over income tax refund payments
- Putting pressure on Public Sector Undertakings (PSU) for declaration of generous dividends
There has been a new addition to the list above. Recently, the finance ministry asked banks to deposit Tax Deduction at Source (TDS) by March 31, 2014 a month prior to the usual deadline. Banks deposit TDS deducted on salary, rent and interest payment to the Government. As per Income tax rules, banks are allowed to deposit TDS by April 30th every year. Bankers are of the view that advisory of the finance ministry has been conflicting with the income tax rules.
PersonalFN is of the view that, attempts of the Government to compress the fiscal deficit number would make a job of the new government tougher. Managing fiscal deficit would be a herculean task. PersonalFN also believes that, RBI would consider level of fiscal deficit before taking any call on policy rates. Further, global rating agencies would also track the fiscal deficit number.
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Impact
Various opinion Polls are hinting at a change in the regime at centre. Backed majorly by aggressive buying by Foreign Institutional Investors (FIIs), equity markets have witnessed a pre-election rally which is still going strong. This has brought about several changes in the approach of domestic investors. One of the noticeable changes has been sectorial preferences of mutual funds. It is widely believed that the new Government would encourage economic growth and cyclical sectors would be the major beneficiaries.
PersonalFN has observed that over last few months, some of India’s prominent mutual fund houses such as HDFC Mutual Fund, ICICI Prudential Mutual Fund, Reliance Mutual Fund, SBI Mutual Fund and UTI Mutual Fund have been raising exposure to cyclical stocks aggressively in various diversified funds offered by them. Till recently fund houses adopted defensive strategies and had assigned higher weights to sectors such as consumer non-durable and pharmaceuticals. Playing the rupee depreciation theme, fund houses had also increased exposure to information technology and other export oriented sectors. On the other hand, they went slow particularly on sectors such as banking, auto, engineering and capital goods. These sectors are back in favour now. Some important policy decisions such as hike in the gas prices which is effective from April 01, 2014 have made a few of them go bullish on oil and gas sector as well.
PersonalFN is of the view that, looking at robust inflows of foreign capital into Indian equity markets, it seems markets are likely to stay firm at least till election results are announced. The momentum of the current rally may continue going forward, if the new Government is formed with a comfortable majority. However, fractured mandate may discourage investors and markets may even fall. PersonalFN believes individual investors would be better off if they avoid investing in a particular sector based on any speculation about the outcome of elections.
It is noteworthy that although mutual funds have raised their exposure to sectors which would benefit by the revival of economic growth; they are buying selectively. These sectors were beaten down for some time hence valuations are attractive on these counters. However, improvement in the overall prospects for any sector doesn’t mean all companies in the sector would be rewarded proportionately. PersonalFN is of the view that for this reason, individual investors should refrain from investing in a particular sector based on speculation of the outcome of elections. You would be better off investing consistently performing diversified equity fund instead.
Do you think the fund managers are right in betting on cyclical stocks on account of ambitious outcome of the opinion polls? Share your views here.
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Impact 
have As many of you might be aware the central government has launched a new Exchange Traded Fund (ETF) known as the Central Public Sector Enterprises (CPSE) fund in order to augment its disinvestment activities in the current fiscal. The Government expects to meet its lowered disinvestment target of Rs 16,027 crores by raising about Rs 3,000 crores from the CPSE ETF during this fiscal year. The stocks constituting the index and their respective weightages are listed in the table below:
| Company’s Name |
Weight (%) |
Industry |
| Oil & Natural Gas Corporation Ltd. |
27.60 |
Energy |
| GAIL (India) Ltd. |
17.84 |
Energy |
| Coal India Ltd. |
17.32 |
Metals |
| Rural Electrification Corporation Ltd. |
7.13 |
Financial Services |
| Indian Oil Corporation Ltd. |
6.96 |
Energy |
| Oil India Ltd. |
6.95 |
Energy |
| Container Corporation of India Ltd. |
6.55 |
Services |
| Power Finance Corporation Ltd. |
6.35 |
Financial Services |
| Bharat Electronics Ltd. |
2.05 |
Industrial Manufacturing |
| Engineers India Ltd. |
1.26 |
Construction |
(Source: NSE India)
As can be observed from the table, this CPSE Index comprises of 10 blue chip PSU stocks, out of which ONGC, Gail and Coal India constitute over 60% of the total weightage. In value terms, maximum stake would be sold in the aforementioned companies and the least in Engineers India.
The subscription to this new fund offer (NFO) is open for investing for retail investors from March 19, 2014 until March 21, 2014. A 5% discount is being offered to investors applying through this NFO. Moreover, bonus units will be allocated to those who hold on to their investments for more than a year. The Government believes that launching an ETF for disinvestment purposes will restrict short selling activities that usually surge up during this period due to the price discrepancies occurring before and after the public issue. This is because unlike other disinvestments where stake in a single company is usually diluted, the CPSE ETF would aim at selling the government holdings in 10 large public sector companies. Also the fact that investors would be allotted “units” and not “shares” once they make a purchase in the CPSE ETF NFO, reduces the chances of an arbitrage opportunity taking place. The purchase price of units would be determined on volume-weighted average price (VWAP) basis.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
Short Term Markets always have a surprise element for investors, especially for individual investors. Equity indices in India are taking everyone by surprise and quickly passing by significant milestones these days. But not long ago everything looked negative; economic growth was slumping, rupee was battered, Foreign Institutional Investors (FIIs) were cutting exposure to Indian assets and even domestic investors were showing little faith in the market.
On this backdrop, markets not only did recover but also reached a new high. Northward journey didn't stop there. The new high was breached within few trading sessions and markets made
another high. In the recent years, such joyous mood of the market was previously experienced when second stimulus package was announced in the U.S. in 2010. Commodities had a nice run and also the emerging market equities. In India, the growth was relatively strong and rupee was firm against the USD. All these got investors believe that growth in India would continue to be relatively less affected by the global events. Optimism drove markets high; but reality got them back on the ground subsequently. In this process, one theme that was severely hammered was infrastructure. All infra-focused funds underperformed broader markets and diversified mutual funds. But now many experts are advising that investors should bet on infra theme and invest in cyclical sectors.
To read more about this news and the view of PersonalFN over it, please click here.
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- RBI is in the last stage of finalising names of entities who will be awarded banking licenses. However, it is getting clearer that there would be some disappointment for corporate houses as they are unlikely to get a banking license. Although applications of industrial houses were considered, important circles in RBI flagged the caution against issuing licenses to them. The opposition for issuing banking licenses to corporate houses, in general, is widespread. Some well renowned economists, International Monetary Fund (IMF), have expressed contrary views in the past. Among 25 applicants, including some corporate houses such as Aditya Birla Group, Bajaj Gorup, and Anil Dhirubhai Ambani Group, only a few NBFC companies are likely to get a license.
PersonalFN believes that citing some long term risks involved, RBI might decide not to roll out licenses to corporate houses. PersonalFN believes that the central bank is moving in the right direction for attaining the goal of financial inclusion without leaving any scope for lapses in risk management.
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Fiscal Deficit: "When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits"
(Source: Investopedia)
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Quote : "Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." - Fred Schwed Jr.
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