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| June 05, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
26,768.49 |
-1059.95 |
-3.81% |
| Re/US $ |
64.01 |
-0.2 |
-0.31% |
| Gold Rs/10g |
27,050.00 |
-100.00 |
-0.37% |
| Crude ($/barrel) |
62.66 |
1.56 |
2.55% |
| F.D. Rates (1-Yr) |
7.00% - 8.50% |
Weekly changes as on June 04, 2015
*BSE Sensex as on June 05, 2015
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Impact 
India depends so badly on monsoon that, even the minor deviation from the Long Period Averages (LPAs) threatens to derail the momentum of economic growth in country. Risk of high food inflation rises and corporate profitability also comes under pressure when monsoon is deficient.
Recently, Indian Meteorological Department (IMD) has cut its monsoon forecast to 88% of LPA from 93% of LPA predicted earlier. IMD opines that there is 66% possibility that monsoon may be deficient this year. Giving concurring view, Harsh Vardhan, Minister of Science, Technology & Earth Sciences, expressed his concerns about climatic changes. In an interview given to Business Standard lately, the Minister said, "let us not fool ourselves that there is no connection between the unusual number of deaths from the ongoing heat wave and the certainty of another failed monsoon,” Harsh Vardhan said. "It's not just an unusually hot summer, it is climate change.”
The impact of these predictions can be felt even now. Vegetable prices have shot up significantly over last fortnight. The initial spike in the vegetable prices that was caused by the heat wave may have got intensified with latest predictions of poor rainfall. However, the Government appears to be fairly confident of tackling the drought-like situation effectively, if it arises.
What plan the Government has outlined?
- The Central Government has prepared a contingency plan for 600 districts out of 676 districts spread across the country
- It may soon announce Minimum Support Prices (MSP) for Kharif crops providing guidance to farmers as to growing which crop would be more remunerative for them
- The Mahatma Gandhi National Rural Employment Guarantee Scheme would provide work for more than mandatory number of days in areas affected with less rainfall
- The Government aims to generate additional 14, 000 Mw electricity through gas-fired power plants by making available more gas. This is expected to recover the possible loss in power generation at hydroelectric power stations
- Water levels in major reservoirs would be monitored closely and if needed authorities may be asked to release water from major dams
- The Indian Railway might run special trains to tackle with a shortage of drinking water
- The Government may use the price stabilisation fund to curb food price inflation, if needed
- State Governments would be directed to take prompt steps to minimise the damage caused by deficient rain
Meanwhile, private weather forecasting agency Skymet has reiterated that it expects monsoon to be normal this year and believes that, "weather forecasting agencies across the world are over-weighing El Nino's impact on Monsoon 2015.” PersonalFN is of the view that, it is better to be prepared for the tough situations and thus it’s a wise decision of the Government to chalk out a contingency plan for drought-like situation.
PersonalFN also believes that it is important to curb inflation as it not only affects discretionary incomes of individuals but profitability of corporates as well. RBI has already highlighted the importance of food management in curbing the food inflation in case monsoon turns out to be deficient.
PersonalFN is of the view that, monsoon may affect returns generated by your investment portfolio in addition to affecting your daily life. PersonalFN suggests that, investors shouldn’t participate in any speculation over monsoon and keep investing as per their personal financial plan.
Do you think the Government would be able to handle drought like situation effectively? Share your views here.
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Impact
Sustained rally in equity markets has brought many new investors to mutual funds in the Financial Year (FY) 2014-15. As per data disclosed by the Association of Mutual Funds of India (AMFI), nearly 22 lakh investors invested in mutual funds for the first time in the last fiscal.
MF industry trends...
New investors largely preferred equity oriented schemes. They also chose well-known fund houses with huge asset base. As reported by Business Standard dated June 03, 2015, ICICI Mutual Fund, Birla Sun Life Mutual Fund, HDFC Mutual Fund, Reliance Mutual Fund and UTI Mutual Fund which collectively manage 80% of industry’s assets, remained the most preferred fund houses of new investors. However, it is noteworthy that, participation of high Net worth Individuals (HNIs) in mutual funds shot up nearly 100% in FY 2014 as against, muted rise of 8% recorded in the retail segment. What’s more; it has also been observed that, mutual funds are finding it difficult to expand their operations beyond top 15 cities. While Maharashtra accounts for nearly 35% of asset base of the industry, states such as Himachal Pradesh, Meghalaya, Jammu & Kashmir, Meghalaya and Sikkim have less than Rs 1,000 crore each Assets under Management (AUM).
What these trends tell you?
The latest trends in the mutual fund industry reinforce the fact that there is no alternative to investors’ education when it comes to growth of mutual funds. PersonalFN believes, while there is no harm in investing in equity oriented funds when markets are rising, there is always a problem when an investor starts speculating about the market direction every time he invests. Many investors are afraid of investing in mutual funds when markets are down. In fact, they start coming back to markets only when the substantial rally is over. As mentioned by live Mint, mutual funds launched close to 85 schemes in FY 2014-15, of which about 58 were close ended. This factor has been one of the major contributors in attracting new investors.
PersonalFN is of the view that, investors need to pay close attention to how a fund house is performing broadly across its schemes, before investing in any of the schemes offered by it. Going merely by the name or the AUM size may prove to be disadvantageous to you in the long run. It has been observed that, a few of fund houses with huge AUM size have performed extremely ordinarily in the on-going bull market. Yet they have managed to grow their investors’ base considerably.
PersonalFN believes investors must consider disadvantages of investing in New Fund Offers (NFOs). Big fund houses often manage to float NFOs aggressively given the sound state of their finances. In reality, rather than just AUM and the brand-name, dedication to serving investors to the full and process driven approach to fund management with adequate focus on risk management, helps generate superior returns.
PersonalFN provides unbiased mutual fund services. In the near future, PersonalFN is planning to release a paid report giving investors idea about 5 funds which are not very popular but are run very effectively. Focus of these funds is on emerging businesses which are likely to benefit, going forward.
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Impact
In an exciting cricket match, spectators start cheering for a six, and at the very next ball if the batsman smashes it out and does the honours, there a big round of applause. However, such euphoria doesn't last for very long if batsman throws away his wicket in the same over.
Something similar seems to be happening to Indian capital markets these days.
As widely anticipated, the Reserve Bank of India (RBI) cut policy rates at its 2nd bi-monthly monetary policy review meet. It was an extremely pleasing moment, as RBI honoured the expectations in the 2nd bi-monthly monetary policy statement for 2015-16; but a hawkish tone to its outlook spoiled the rate cut party.
Upside risk to food inflation remains...
(Source: MOSPI, PersonalFN Research)
What stance did the RBI take?
- The central bank reduced the Repo rate by 25 basis points (bps) or 0.25% with immediate effect taking the repo rate down to 7.25% from 7.50% prior to policy action.
- Consequent to the above, the reverse repo was also re-adjusted to 6.25% from 6.50% earlier, thereby continuing to maintain the Liquidity Adjustment Facility (LAF) corridor between repo and reverse repo rate at 100 bps
- Also the Marginal Standing Facility (MSF) rate (which is determined with a spread of 100 basis points above the repo rate) was consequently re-adjusted 8.25%, and so was the bank rate to 8.25% with immediate effect
- The Cash Reserve Ratio (CRR) was kept unchanged at 4.00% of Net Demand and Time Liability (NDTL)
- The Statutory Liquidity Ratio (SLR) was kept unchanged at 21.50%
- Continue to provide liquidity under overnight repos at 0.25% of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75% of NDTL of the banking system through auctions
- Continued with overnight/term variable rate repos and reverse repos to ensure smooth liquidity
To read more about this news and PersonalFN's views over it, please click here.
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Impact
Although it may not be visible on ground as yet, recently disclosed numbers show that growth in India's Gross Domestic Product (GDP) has been world's fastest in the quarter ended on March 31, 2015. As per official figures, India's GDP grew at 7.5% in the fourth quarter of the Financial Year (FY) 2014-15. While full year growth was a tad lower at 7.3%, still in line with expectations.
Positive aspects of Q4 GDP numbers
- Trade, hotels, transport and communication services grew at 14.1%.
- Financial, real estate and professional services grew at 10.2%
- Manufacturing activates revived recording a growth rate of 8.4%
And the concerns are...
- Agricultural output dipped by 1.4%
- Mining and quarrying sectors grew at a slower pace of 2.3%
- Public administration, defence and other Services recorded only 0.1% growth
- Electricity, gas, water supply and other utility services registered below par growth of 4.2%
To know more on our views on this, please click here.
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- For last 1 year, market sentiment has remained strong. Investors are keeping faith in reform agenda of the NDA Government. Strong market sentiment and improved business prospects are two factors that have revived the primary market activities. The Initial Public Offers (IPOs) have gone up substantially since the Modi-led NDA Government came to power in May 2014. Since then, about 32 companies have filed proposals with the capital market regulator, Securities and Exchange Board of India (SEBI) for collecting funds from investors. Most of these companies are mid-sized and are aspiring to raise any amount between Rs 200 crore and Rs 1,500 crore.
It is expected that, more companies will approach investors for meeting their financing needs if economy picks up momentum. Then, even larger companies which have been relying on internal resources till now may have to raise funds in the primary markets.
It has been experienced that, if offered at attractive price, companies with good fundamentals are getting good response. But there have been some failures too. This suggests that, investors are becoming aware about the quality of issuances.
PersonalFN is of the view that, investors should closely check how the company wants to utilise funds raised through IPOs. If they will be used to funding working capital requirements, there may be some trouble and you need to be alert. While capital infusion for expansion is a good thing, you can’t invest blindly in such companies either. You should pay attention to state of the sector that company belongs to; track record of the company and level of debt on the books among other factors.
PersonalFN warns investors against falling prey to the false promises of brokers and investment consultants advising investors to invest in IPOs for making listing gains. PersonalFN believes, any equity asset, be it direct investment in companies or investment in equity oriented mutual funds, it is essentially for long term; i.e. for minimum of 5 years. Before you invest in equity assets you should find out how much of your portfolio should go in equity. Personalised asset allocation plays a crucial role in building a portfolio to take care of your financial goals.
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Stabilization Policy: "A macroeconomic strategy enacted by governments and central banks to keep economic growth stable, along with price levels and unemployment. Ongoing stabilization policy includes monitoring the business cycle and adjusting benchmark interest rates to control aggregate demand in the economy. The goal is to avoid erratic changes in total output, as measured by Gross Domestic Product (GDP) and large changes in inflation; stabilization of these factors generally leads to moderate changes in the employment rate as well. "
(Source: Investopedia)
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Quote : "Everyone has the brainpower to make money in stocks. Not everyone has the stomach " - Peter Lynch
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