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| August 07, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
28245.8 |
131.24 |
0.47% |
| Re/US $ |
63.77 |
0.27 |
0.42% |
| Gold Rs/10g |
24,850.00 |
-200.00 |
-0.80% |
| Crude ($/barrel) |
49.9 |
-2.80 |
-5.31% |
| F.D. Rates (1-Yr) |
6.25% - 8.20% |
Weekly changes as on August 06, 2015
*BSE Sensex as on August 07, 2015
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Impact 
Foreign Institutional Investors (FIIs) are the backbone of Indian equity markets. It has been observed that, when they sell aggressively, the fall in the market is imminent. In the April-June quarter of this Financial Year (FY), FIIs reduced their stake in 41 companies forming a part CNX Nifty Index. Selling stake in India's frontline stocks, are they showing thumbs down to growth prospects of India? Let's find out
FIIs have preferred to go slow on acquiring Indian equities for a last few months. In the Q1 of FY 2015-16, FII flows remained volatile as the high risk appetite and risk aversion continued to play hide-and-seek at the global landscape.
Are FIIs Shunning Indian Stocks?
Data as on June 30, 2015
Source: ACE MF, PersonalFN Research
Close inspection of the above given chart would tell you that, although FII flows were positive in the Q1, FY 2015-16; it was only on account of a bump up witnessed in the 3rd week of April when FIIs poured in a little over Rs 16,300 crore on single day. If you leave that apart, FIIs flows would fall in negative. This suggests that, the sentiment about Indian markets may have turned neutral from positive.
Reasons for loss in interest of FIIs could be:
- Uncertainty about Greece Exiting Eurozone
- Uncertainty about quantum of probable rate hikes by the Federal Reserve (Fed) in the U.S.
- Poor corporate performance in India
- Attractiveness of other emerging markets vis-à-vis Indian markets
However, it is noteworthy that, between July 01, 2015 and August 05, 2015; FII inflows have gone up a bit to the tune of about Rs 6,500 crore. Sudden fall in the Chinese markets and relatively stable global environment may have helped Indian markets.
Aggregate exposure of FIIs to Nifty stocks reduced from 29.2% at the end of previous quarter to 28.6% in Q1. You may be surprised to know that FIIs have bought selectively in midcap space. Such trait points at their cautiousness to market valuations. On the other hand, mutual funds are busy deploying funds they gathered through New Fund Offers (NFOs). Equity schemes of mutual funds in India saw second-highest ever flow in June.
PersonalFN believes, you shouldn't follow FIIs but at the same time you shouldn't follow the market momentum either. If you invest in equity markets (directly or through mutual funds) when valuations are high; you might be disappointed later to see ordinary returns on your investments. To avoid being in such a situation, PersonalFN suggests that, you should follow your asset allocation and take exposure to equity assets after carefully assessing your risk appetite and long term goals. Systematic Investment Plans (SIPs) offered by mutual funds may help you tide over phases of high valuations and benefit from rupee-cost averaging when markets fall. You should select the mutual funds carefully.
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Impact 
Economy grows when people running it grow. In growing economy industrial production rises; earnings of businesses and those of individuals also go up. As a result, government collects more revenue by way of taxes and spends less thereby creating surpluses. However, when going gets though and industry finds it difficult to generate high revenues, economic growth comes under pressure. In absence of incremental demand, companies go easy on capacity additions and economy continues to stagnate.
Today, India is passing through somewhat similar situation. The Government has been trying to shore up private investments by creating conducive environment, speeding up clearances and announcing incentives. Despite of that, little has changed and the process of capacity additions in the private sector has not revived. Existing capacities are still underutilised. If this continues, there is a chance of economic growth slipping below 7% again.
To ensure that, India grows at a decent pace and possibly achieves 8% growth; the Government has decided to spend more to provide much needed momentum to the economic growth.
What is the plan to achieve 8% growth?
The Government has decided to spend more to provide momentum to economic progress. The government has identified four major milestones that need to be achieved to achieve growth of 8% and more. They are,
Providing a four year plan to recapitalisation of banks, the government is planning to infuse Rs 70,000 crore into Public Sector Banks (PSBs) in next 4 years. In the Financial year (FY) 2015-16 and 2016-17; the Government is likely to provide capital assistance of Rs 50, 000 crore and that of Rs 10,000 crore in FY 2017-18 and 2018-19 respectively. The spending of Government in the Q1 of FY 2015-16 has been highest since FY 2008- 2009. The Government has already exhausted about 25% of the plan expenditure in first 3 months with emphasis on development of road projects, especially in rural areas. The Government has cleared 42 stalled projects amount to Rs 1.15 lakh crore. Projects that have been revived, involve some key projects such as Navi Mumbai airport project along with other important road and highway development and coal mining projects.
Any sign of revival?
Although industrial production, credit offtake and low utilisation of capacities point at a slack in activities; 37% rise in indirect tax collection in Q1, FY 2015 keep hopes alieve. This doesn't only give the Government additional resources upto Rs 70,000 crore to spend on infrastructure development but it also suggests that the consumption demand might be picking up.
PersonalFN is of the view that, there is a limit to which Government spending can go up considering financial constraints on the Government. Fiscal deficit target has been set at 3.9% for FY 2015-16. Furthermore, consensus on issues such as GST may make the Government longer than expected. Prospects of recently cleared projects which were stalled remain a big question. It will have to be seen how many of them are still economically viable. Increase in the collection of indirect taxes might be misleading as no clarification has been offered as how much of it is on the account of increase in rates of service tax.
PersonalFN also believes investors shouldn't pay much attention to excitement about higher economic growth. You should closely monitor the progress on ground and take cautious investment decisions which are consistent with your long term financial goals.
Do you think measures taken by the Government are good enough to rekindle economic growth? Share your views here.
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Impact
Monsoon mega discount offers start raining allover around this time of the year. Shopping malls and other retail outlets see higher footfall. Some banks and financial institutions too announce special borrowing schemes at teaser rates. If you were hoping to get any such offer this monsoon; there is some bad news for you. It is unlikely that, you are going to get any bargain deal this season.
Reason?
Borrowing cost is unlikely to go down significantly in the foreseeable future, at least in the Financial Year (FY) 2015-16. RBI chose to keep monetary policy rates unchanged at the third bi-monthly monetary policy review meeting conducted recently. Reviewing inflationary trends, liquidity conditions, impact of previous rate cuts on credit offtake and growth along with other macro-economic variables, RBI decided to maintain status quo on policy rates.
Retail Inflation: More Upside Left?
Data as on July 13, 2015
(MOSPI, PersonalFN Research)
Background to policy review
Since the second bi-monthly monetary policy review on June 03, 2015; global economy recovered modestly. While U.S. economy saw buoyancy marked by strong consumption and steadily improving conditions in job market, economic recovery in the Eurozone was moderate. Emerging market economies witnessed decelerating trend in economic growth.
As far as India is concerned, economic recovery has been under its way but has not picked up significantly just yet. Despite of higher imports in select items electronic goods, pulses, iron ore and fertilisers, trade deficit and the Current Account Deficit (CAD) remained lower. Consumption demand is seeing some revival, especially in the urban areas. Having said this, exports look still weak as global demand remains soft. Capex cycle has not gained vigour yet due low utilization of established capacities. Growth in services sectors remain mixed. RBI expects Indian economy to grow at 7.6% in FY 2015-16.
To know more about this news and PersonalFN's views over it, please click here.
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Impact
The Reserve Bank of India (RBI) has thus far cut policy rates thrice this calendar year aided by mellowed inflation. Lower rates have been passed by banks after an initial prodding done by RBI, and as result interest rates offered on term deposits too have moved down.
But interestingly, Small Saving Schemes (SSS) are yet offering better interest rates, yielding investors better returns.
| Scheme Name |
Rate of Interest p.a. |
Tax benefit |
| Post Office Monthly Income Scheme (POMIS) |
8.40% |
Nil |
| Kisan Vikas Patra (KVP) |
8.70% |
Nil |
| Public Provident Fund (PPF) |
8.70% |
Deduction u/s. 80C |
| 5-Year NSC VIII Issue |
8.50% |
Deduction u/s. 80C |
| 10-Year NSC IX Issue |
8.80% |
Deduction u/s. 80C |
| Post Office Time Deposits (POTD) |
8.40% - 8.50% |
Deduction u/s. 80C |
| 5-Year Recurring Deposit |
8.40% |
Nil |
| Savings Deposits |
4.00% |
Nil |
| Sukanya Samriddhi Yojana (SSY) |
9.20% |
Deduction u/s. 80C |
| Senior Citizens Savings Scheme (SCSS) |
9.30% |
Deduction u/s. 80C |
(Source: PersonalFN Research)
All the same, it may not be too long before interest rates are pulled down. The finance ministry is planning to review its small savings schemes later this month.
To read more about this and our views, please click here.
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- When you want to buy any financial product, you first have to comply with know Your Customer (KYC) norms. What's more, they differ from one entity to the other. Stock brokers, insurance companies and banks will ask you to furnish different KYCs. Good news is; this may change soon.
Early this month, the finance ministry has notified rules for the central registry which is expected to verify your documents and keep record. Therefore, any new relationship requiring you to fulfil KYC norms will become the reporting agency to the proposed central registry. After due verification of your identity proofs such as PAN number, Aadhaar number, passport and driving licence among other, the registry will issue a unique KYC identifier which you need to quote for every new transaction made thereafter.
The said, norms are expected to help Government closely monitor financial transactions and curb circulation of black money. It is expected that, ease of investing may help improve penetration of financial products.
PersonalFN is of the view that, it is important for you to comply with such norms as and when they become applicable, to avoid complications pertaining to non-compliance at a later stage.
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Liquidity Adjustment Facility: "A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets."
(Source: Investopedia)
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Quote : "Investing money is the process of committing resources in a strategic way to accomplish a specific objective." - Alan Gotthardt
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