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| October 09, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 27,079.51 | 858.56 | 3.27% | | Re/US $ | 65.08 | 0.51 | 0.78% | | Gold Rs/10g | 26,275.00 | 275.00 | 1.06% | | Crude ($/barrel) | 51.22 | 4.76 | 10.25% | | F.D. Rates (1-Yr) | 6.25% - 8.00% | Weekly changes as on October 08, 2015
*S&P BSE Sensex value as on October 09, 2015 |
Impact 
Students who are in the habit of preparing for examinations at the last minute can vouch that such an approach does more harm than good. Even an A+ student, having a good grasp on a subject, seldom passes with flying colours unless he/she prepares well in advance. In short, one shouldn't start digging the well when one feels thirst. There are always top class performers who study and brush up their skills regularly, practice mock-ups frequently, and do everything necessary to increase their chances of a high score.
In the finance world, the RBI plays the A+ student taking on far more challenges than classroom tests. The chief responsibilities of the central bank are to control inflation, provide stimulus to economic growth when needed, and maintain stability of the currency. These are areas beyond the control of the RBI, but it has to adjust its stance keeping an eye on the broader objectives it wants to achieve.
As far as maintaining the stability of the value of currency is concerned, the RBI is likely to hit bull's eye.
Here's why we can expect the Indian Rupee to remain stable:
- The RBI has been buying U.S. Dollars (US$) in forward markets for the tenure of over a year. The central bank has not done so in last many years. As reported by the Financial Express dated October 08, 2015, the RBI bought 3.04 billion US$ in July and August. The central bank is preparing for the contingent outflows that may arise from September 2016 onwards. In 2013 under the swap facility provided by the RBI, banks in India had garnered close to US$ 34 billion. These discounted swap rates were offered to banks to bring in dollars to save Indian Rupee (INR) from losing ground at the time. With such proactive steps, RBI consistently appears to be staying ahead of the curve.
- The import cover indicates how adequate a country's forex reserves are to pay off import bills. As per the RBI report on Foreign Exchange Reserves dated July 28, 2015, India's import cover has gone up from the cover of 8.1 months in September 2014 to 8.9 months by the end of March 2015. It was 7.8 months by the end of March 2014 and 6.6 months in September 2013. This means higher import cover helps curb the volatility in currency markets. The RBI has taken cautious calls by not allowing excessive appreciation or depreciation of INR.
- Incidentally, the same report states that short-term debt, as a percentage of forex reserves, has fallen from 27.7% in September 2014 to 24.8% at the end of March 31, 2015. Furthermore, the ratio of volatile capital flows to the reserves has declined from 94.3 per cent at the end of September 2014 to 91.7 per cent as on 31st March, 2015. These are positive signs for the INR.
- Although the INR breached the mark of 66 on the downside against US$ after China devaluated its currency, the central bank still believes India is better placed than other emerging-market economies on the currency front. The RBI Governor, Dr. Raghuram Rajan recently made it clear that the bank hasn't been in favour of allowing currency depreciation unlike its global peers.
- Markets have already prepared for a hike in interest rates by the Federal Reserve (Fed) in the U.S. However, poor recovery in employment data may nudge the Fed. Rev. to postpone the interest rate hike. In this scenario, the US$ may soften against a basket of major currencies and INR may benefit from such developments.
PersonalFN holds the view that the INR's buoyancy comes from the improving economic performance and cautious policy decisions of the RBI. The central bank has been working to not only reduce Rupee volatility, but to improve fundamental strengths of the currency as well. A case of the softening Dollar may be icing on the cake.
Things to remember...
- Adopt watch and wait attitude on the Rupee movement
- Currency Derivatives are the most imprudent way to make money with higher chances of losing the principal amount.
- Reconsider when investing in off-shore funds. Stability and increased clout in the INR may negatively affect these funds performance.
Lastly, RBI has the tough task of balancing it all; an extremely weak INR value affects importers negatively, while an excessively strong Rupee depresses exporters.. So far, it has lived up to expectations.
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Impact
If confusion takes over while selecting a mutual fund scheme, you are not alone. To select one or two schemes from a plethora of options is a tough task. Apart this selection dilemma, there are other issues pertaining to mutual funds common across the board. While some of these issues are operational, others have to do with the investment processes.
Securities and Exchange Board of India (SEBI) has decided to address these genuine concerns of investors. Unfortunately, all problems aren't overtly detectable. To protect the investors' interest, the capital market regulator is planning to introduce stricter norms for mutual funds.
Let's first understand what the concerns are:
- High cost structure of mutual funds primarily due to high commissions paid;
- Too many schemes with similar objectives and mandates;
- Complicated disclosure practices;
- Focus of prominent players in the mutual fund industry is on acquiring and retaining High Net worth Individuals (HNIs);
- Approach to risk management – Amtek Auto episode suggests fund houses are vulnerable to high risk arising out of relatively ineffective internal risk management processes; and
- Mutual funds have been long blamed for following the Foreign Institutional Investors (FIIs) when it comes to taking investment decisions.
Addressing these issues at the Annual General Meeting (AGM) of Association of Mutual Funds of India (AMFI), the SEBI chief made it clear that the regulator wants to make mutual funds an investment route for small investors desiring to invest in the capital markets.
The regulator not only expects mutual funds to reduce the options available to investors by merging similar schemes but aims to lower costs. The regulator believes mutual funds shouldn't rely entirely on ratings assigned by independent rating agencies and should exercise diligence before making any investment in corporate debt.
It seems mutual funds will also have to comply with almost all recommendations made by the Sumit Bose Committee. Currently, the recommendations are still in the discussion phase.
PersonalFN is of the view that the regulator's stand may work well in the investors' interest of. If the mutual fund options are revised cautiously, investors will find it easier to choose suitable schemes for their portfolios. Simple disclosures are welcome, while reasonable investment costs, stringent risk-management processes, and effective investment decisions will create a better environment for investors.
If you are unsure of which funds to invest in or lack the time to do thorough research on your own, simply take advantage of the unbiased research services from PersonalFN.
Do you think changing regulatory environment for mutual funds would help attract more investors to them? Share your views here.
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Impact
Usain Bolt might be the fastest man in the world, but speed records can't remain unbroken forever. And before you jump the fence, this isn't about someone challenging the Jamaican athlete in the 100 or 200 meters sprint. In any case, he might be long gone before another runner catches up with him. This race is different; one that doesn't involve contestants, cars, or bikes. The race for expansion of mutual fund houses is getting more intense. Yes, there are mutual fund houses in India going hell for leather. In brief, the market rally that started out in late 2013 has sustained itself for nearly 2 years now. And the eye-popping growth in the Assets under Management (AUM) of a few fund houses hasn't happened by chance.
The three factors behind it are:
- Good market conditions;
- A period of risk-on leading to a change in the risk appetite of investors; and
- Aggressive marketing strategies adopted by mutual fund houses
The decisive mandate obtained by Modi-led-NDA Government in the 2014 Lok Sabha elections has led to a period of exuberance and hope across all industries in India. Foreign Institutional Investors (FIIs) have exuded confidence in the Indian economy and this has uplifted the market sentiments. Domestic mutual funds turned 'net buyer' in the Indian equity market since May last year to gain maximum advantage of these opportunities, and retail investors have evinced interest in the market too.
Top 5 Fund Houses--by Average AUM
(Source: AMFI, PersonalFN Research)
The chart above depicts how the AUM of top five mutual fund houses has grown over a period of one year. Competition among the top three players has become even fierce, with the gap between their AUMs narrowing rapidly.
To know more about this and PersonalFN's views over it, please click here.
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Impact
Small savings schemes (SSS) such as Public Provident Fund (PPF) or National Savings Certificate (NSC) have been popular with investors, not only because they are safer than other options, but also because they receive favourable tax treatment. Another attractive factor is the relatively stable interest rate offered by these schemes. Thus small savings schemes form a major chunk of investment portfolios for many Indians. But these Small Savings Schemes (SSS) may lose their charm soon.
The Reserve Bank of India (RBI) has been insisting that banks pass on the full benefit of policy rate cuts to borrowers. In the fourth bi-monthly monetary policy statement for 2015-16, the RBI has stated, the focus of monetary action for the near term will shift to working with the Government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points (bps) cut in the policy rate are removed.
To read more about this news and our views, please click here.
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- Do you prefer to pay cash for all your purchases? Soon you may have to provide your PAN details for high valued cash transactions.
Recently, the finance minister made his point on a social networking site, "the government is at an advanced stage in considering the requirement of furnishing PAN Card details if cash transactions beyond a certain limit are undertaken."
This is the government's attempt to weed out black-money holders. To improve the analysis on extensive data, the tax authorities are upgrading their technologies. This will help the income tax department detect tax evaders more effectively. By granting licenses to payment banks, RBI has already hinted at encouraging 'plastic' currency.
PersonalFN believes you should report your income to the government by filing tax returns in time. You may take advantage of provisions in the Income Tax Act that exempt certain income brackets from tax or help reduce your tax liability. |
Forward Contract: A customized contract between two parties to buy or sell an asset at a specified price on a future date. A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging. Unlike standard futures contracts, a forward contract can be customized to any commodity, amount and delivery date. A forward contract settlement can occur on a cash or delivery basis. Forward contracts do not trade on a centralized exchange and are therefore regarded as over-the-counter (OTC) instruments. While their OTC nature makes it easier to customize terms, the lack of a centralized clearinghouse also gives rise to a higher degree of default risk. As a result, forward contracts are not as easily available to the retail investor as futures contracts.
(Source: Investopedia)
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Quote : "The most important quality for an investor is temperament, not intellect." - Warren Buffett
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