  | | April 11, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 22,628.96 | 269.46 | 1.21% | | Re/US$ | 60.07 | 0.11 | 0.18% | | Gold Rs/10g | 29,425.00 | 805 | 2.81% | | Crude ($/barrel) | 107.33 | 3.38 | 3.25% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on April 10, 2014
*BSE Sensex as on April 11, 2014 | |
Impact 
Awareness about the Lok Sabha election and voting has grown substantially this time. Some regions of India are witnessing record-high participation in voting. Reviving sinking economy seems to be the top agenda of all political parties aspiring to form the new Government. As revealed by various pre-poll surveys, the general perception is that BJP led NDA is most likely to form the new Government. Markets are going up on hopes that the new Government would boost the economic growth. PersonalFN believes it would a herculean task for the new Government to get the economy back on track.
Here is why...
Unless the Indian economy grows at a pace of 5.7% in the 4th quarter of 2013-14, it cannot achieve the target of 4.9% for the entire financial year. Although the results are yet to be seen, this looks difficult due to the subdued industrial growth and high fiscal deficit.
(Source: Financial Express)
As can be seen in graph above, the Gross Domestic Product (GDP) of the economy has been missing its set target since the 9th five-year plan (1997-2002). In the on-going 12th five-year plan (2012-17), the target was originally set at 9% by the ruling Government, however later the same had been revised to 8% due to the prevailing global economic conditions. But now it is believed that this new target may also get further revised to 6% later in this year by the planning commission.
For India to achieve its target of GDP growth, the following factors should be in favour:
- Good monsoon and Good agricultural growth
- Robust industrial growth
- Contained deficits (both fiscal and current account)
- Moderate inflation and Stable rupee
With elections around the corner, all political parties have been promising to bring a recovery in the economic growth story of the country.
The fact is even to achieve the target of 6% in the 12th five-year plan, the Indian economy would need to expand at a pace of around 7% in all the remaining 3 years. However according to the latest estimates given by the International Monetary Fund (IMF), the GDP growth of the country would grow from 4.6% in FY14, 5.4% in FY15 and to 6.4% in FY16. Hence the target of 6% also looks difficult to achieve in the on-going 12th plan owing to the IMF estimates and the present economic situation in the country.
As far as the Indian markets are concerned, they have achieved new highs and have gathered a lot of momentum as we are drawing closer to the elections. The market valuations are not cheap anymore. In fact Indian markets are currently the most expensive among the BRIC nations in terms of the PE multiple. Foreign Institutional Investors (FIIs) have also been pumping a large amount of funds in the Indian markets. So far, the markets are rising on the hope that the political regime in India would change and the coming Government would provide impetus to growth.
PersonalFN believes the economic situation in India may take longer to improve. The exiting Government is leaving a tough job of managing subsidies and containing fiscal deficit to the new Government. PersonalFN believes as an investor it is imperative that you do not get carried away by this momentum in the market. Instead of speculating on election outcome and predicting the market movement, you should follow your asset allocation and invest accordingly to achieve your long term financial goals.
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Impact
Retirement planning is the only key to remain financially secured and maintain a comfortable standard of living even in the later years of life, where you may not draw a regular flow of income. Today, people have started recognising this fact and are seriously considering drawing a retirement plan so that they can live life comfortably in their golden years. However, it is important to understand that merely drawing a retirement plan is not enough as there are various risks and uncertainties that surround your plan. These uncertainties if materialised, have the power to render all your planning efforts to a waste and even make you struggle to make ends meet.
Hence it is imperative that you take to into account all the following risks in order to create a well-balanced and prudent retirement plan.
- Longevity Risk: With the advancement of medical science, the average life expectancy of we humans has risen remarkably. Although it is difficult to estimate how long will an individual live, you should not underestimate your life span while creating your retirement corpus. This is because, if you assume your life expectancy to be 75 years but end up living till 85 years, you will outlive your retirement nest egg with nothing left to pay for expenses for rest of the years.
- Inflation Risk: Inflation is a worry for everybody especially for those who live on a fixed income. You have to be careful while approximating the rate of inflation that might prevail in the future while calculating your retirement corpus. This is because if you assume a lower rate (say 4-5%) and inflation rises higher in the future (say 7-8%) then you would exhaust your retirement savings at a fast pace or would have to really compromise on your standard of living. You see, the inflation bug has a tendency to eat into your hard earned savings.
- Unexpected Expenses: Life sometimes throws us in adverse situations and circumstances for which we might be unprepared or under prepared. Life threatening diseases, natural calamities, difficulties in the life of family members etc. can create a financial as well as emotional turmoil in our life. If the contingency fund that you have created for your golden years is insufficient to take care of all the unexpected expenses, then your goal of living a blissful retired life will be jeopardized.
- Investment Risk: Without a prudent approach to investing, the returns on your investments might decline and erode the value of your retirement portfolio. Moreover while calculating the retirement corpus; if you project an unreasonable rate of return on your investments there would be a shortfall of funds during your golden years.
PersonalFN is of the view that although it is difficult to control all the risks and uncertainties you might face, being prepared for them before you reach the retirement age will help you manage them better.
As you may endeavour to prepare yourself for a blissful retired life, PersonalFN is about to move a step ahead in retirement planning space, with an objective to guide and hand-hold you through the process of planning your retirement. It will walk you through everything that is required for a Rich Retirement. So stay logged on to www.personalfn.com.
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Free Guide: The Ultimate Guide to Successful Equity Investing
The turbulent times encountered by equities over the past few years has sent shiver down the spine of many.
While many investors seem to have lost their faith in equities, those who have ignored fundamentals of investing, have been let down rather badly!
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Download the Ultimate Guide to Successful Equity Investing! | |
Impact
With markets hitting new highs frequently, valuations are getting stretched. Yes, midcaps are still cheaper than largecaps but many of them have already rallied extensively over last few months. About 150 stocks listed on Bombay Stock Exchange (BSE) have hit 52-week high lately. Investors are awaiting election outcome. It's a testing time for investors.
Many of you who invest in stocks might be thinking about exiting now to realise profits and hoping that you will get buying opportunities post-election. There are some investors who believe only in short term trading. They enter or exit stocks quickly. They will exit as soon as they feel they have made enough of profit in a stock or they find more rewarding opportunities. Such investors might be investing in companies, which in their opinion, would benefit if election outcome turns out to be in accordance to their expectation. However, there are a number of disciplined investors who buy stocks and hold them for long term. They are unmoved even when a number of stocks from their portfolio generate huge returns over a very short period of time. Like that for you, it's a tricky time even for fund managers managing mutual funds.
Churning activity of mutual funds...
There is a statistical ratio called "portfolio turnover ratio" which helps you understand how frequently your fund manager enters and exits stocks. The ratio is calculated by taking lower of total sales or purchase transactions performed by a fund over one year and dividing it by average net assets. For example, a fund having Rs 600 crore under its management performed 200 crore worth purchase transactions (assuming purchases are lower than sales) would have a portfolio turnover ratio of 33. A portfolio turnover ratio of 100 indicates that the entire portfolio of the fund is restructured over a period of one year. Churning activity of a fund depends on a number of factors such as...
To read more about this news and the view of PersonalFN over it, please click here.
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Impact 
Temperatures may or may not soar this summer but politics is sure heating up the atmosphere. Various pre-poll surveys are projecting different tallies for political parties but their direction has remained the same. Lok Sabha election has become the 'hot topic' everywhere. Rising equity markets narrate the story of rising investor's interest. Taking advantage of this, some Ponzi schemes are attracting investors in a big way.
How schemes are structured?
Some operators of Ponzi schemes are assuring investors a huge return, doesn't matter what would be the outcome of elections. Ahead of elections, respective regulator(s) are keeping a close eye on suspicious trades and transactions. Although the quantum of money attracted through these schemes is yet to be ascertained; it might run into thousands of crore. Investors are mainly attracted into schemes which are said to be investing in sectors and stocks which are likely to benefit by certain party forming the Government. Investment strategies are claimed to be designed keeping in mind, high-focus areas of the new Government. Nature of some schemes may appear to be legal, while that of others is overtly illegal.
To read more about this news and the view of PersonalFN over it, please click here.
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Portfolio Turnover: A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold - whichever is less - over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.
(Source: Investopedia)
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Quote : "Diversification may preserve wealth, but concentration builds wealth." - Warren Buffett
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