Impact 
Equity markets across the globe have witnessed a sustained rally over last few months. After being a little volatile about a month ago due to Brexit fears, equity markets resumed their upmove.
However, the survey conducted by Bank of America Merrill Lynch (BofA-ML) in July revealed , global fund managers are expecting the globally synchronised rally in equity to peter out soon. Fund managers have been increasing their cash levels that stood at 5.8% at the time of the survey—highest cash levels since November 2011. Many fund managers are becoming bearish on equity and have been hedging their exposures. While 17% survey respondents believed the recession is likely to hit the world.
Responses of global fund managers to the question about risk have been interesting
- About 60% fund managers perceive geopolitical risk is the biggest risk to the financial markets.
- In the aftermath of Brexit, close to 52% considered the protectionist risk is the greatest danger.
- While 48% of respondents believed the most significant risk has been the business cycle.
Where are fund managers investing?
Fund managers have been exiting European stocks and buying more into emerging markets. Their heavy exposure to emerging markets recently reached a 22-month high, indicating that, they expect the current bullish phase to continue.
However, predicting the future market trend hasn’t been an easy pick for any fund manager. They sound confused and have been as confused as any other investor. Nobody knows where the world is going to go. Interestingly there’s a growing sense that, Governments and monetary authorities will soon have to (and they will) print money and distribute it among people to raise the demand for goods and services. This concept is popularly known as the ‘Helicopter Money’. This is expected to counter the risk to the global economy that emerges from the deflationary trends observed in many developed economies. In July, close to 39% fund managers believed ‘Helicopter Money’ is going to be the only option to stoke inflation. The proportion of fund managers considering this has increased 12 percentage points in last one month, a remarkable increase. However, some ambiguity is being created with Bank of Japan (BoJ) opposing this concept.
PersonalFN believes, the current market rally in India may not last long if the global investors fail to get clarity about future trends. If any of the risks highlighted by the fund managers become reality indeed, markets across the globe might fall.
PersonalFN believes, in any case, you shouldn’t speculate on the market movement and economic events. You should instead focus on your asset allocation that encompasses your financial goals and the risk appetite.
Systematic Investment Plans (SIPs) offered by the mutual fund houses help you manage the market volatility without exposing you to the risk of timing the market. SIPs also power your portfolio with the benefit of compounding.
Impact
When it becomes difficult to gather concrete evidence against thieves or identify people who possibly have perpetrated the crime, what options do investigation agencies have? Well, there can be plenty of tricks and knacks to nab the culprits. However, the crude and bizarre method to do that would be to call all the people from the same village for a ‘casual enquiry’. And even freakier way would be not only to interrogate people from the same village but people from other villages too. If you think why anybody would do that, go no farther. Here’s an instance… And you would be shocked to read about the consequences.
FATCA:
You must be aware that, at the Government level, India has signed a pact with the U.S.to enforce the Foreign Account Tax Compliance Act (FATCA). This move is expected to result in greater transparency and will help authorities curb tax evasion due to information sharing. The U.S. Government is primarily interested in identifying U.S. Citizens and green card holders who hold assets outside the U.S. to identify any undisclosed investments outside U.S.
For identifying potential U.S. tax dodgers, now mutual funds in India are collecting information from all investors on tax and residency status. August 31, 2016 has been the deadline for providing information.
FATCA ka ZATKA (Tremor of FATCA)...
And if an investor fails to comply with FATCA, his/her investments are likely to be frozen. To be more specific, the investor may not be able to redeem his/her investments or make new investments once his/her folios get frozen due to non-compliance with FATCA. Receiving dividends may also become tougher. Investments worth nearly Rs 1 lakh crore are non-compliant at present.
There are many operational difficulties in making all investors comply. First and foremost, there are 4 registrars in India acting as the service partners of mutual fund houses. Therefore, investors holding investments in mutual funds having servicing tie-ups with different registrars, have to repeat the compliance process multiple times. For example, registrar ‘A’ can’t accept your papers for mutual funds having servicing tie-ups with registrar ‘B’. In this case, you have to approach registrar ‘A’ as well as ‘B’ independently.
Those who are opting for the online route, have to comply using One Time Password (OTP). The OTPs are sent to the registered mobile numbers of investors. Here the trouble is, many investors have changed the mobile numbers they recorded at the time of making investments. Irrespective of when you invested, you have to comply with FATCA.
Investors’ perspective...
From the average investor’s point of view, these norms are bothersome. The proportion of NRIs in the total number of investors is small. So to collect information about a few people, the Government will be collecting information from all investors.
Inconsistent policies on the compliance front often result in modification of ‘Know Your Client’ (KYC) Processes. Don’t you remember how many time mutual fund houses came up with ‘modified’ KYC forms? If authorities freeze investments of resident mutual fund investors for non-compliance with FATCA, there might be an adverse impact on the progress of mutual fund industry. As an outcome of all factors, investors might end up perceiving that to invest in mutual funds is not easy. Moreover, compliance costs are also high, but it seems they are hardly considered.
Doesn’t matter who you are, where do you live, and how much you invest in mutual funds, Uncle Sam needs your details. Apparently, you can do anything if you can dominate the world. Governments of all other nations will fall in line, if you want them to be.
Impact
Those who spend huge sums yet pay too little tax will soon have to do some self-introspection. The confidence with which such people spend is incredible. Here comes the bolt from the blue—the income tax department has identified 9 lakh such citizens across the country. The Central Board of Direct Taxes (CBDT) plans to approach these people, calling their bluff. Tax officials will also hold up a mirror and nudge them to avail of the window that the Government has provided to declare black money. The CBDT is getting serious about its business.
What’s the scheme?
The Government had introduced a scheme in the Budget session—Income Disclosure Scheme (IDS), 2016, with a deadline set for September 30, 2016. Without getting much into nitty gritty, let’s understand what the scheme is all about. The Government has given a chance to all tax evaders and/or even to innocent tax payers to disclose their income and regularise their assets created by the undeclared portion of their earnings. On the disclosed amount, the assessees will have to pay 45% tax--inclusive of base tax, cess, and penalty. For doing so, the Government of India will grant them immunity from prosecution under Income Tax Act or Wealth Tax Act.
But here’s the catch...
IDS doesn’t talk about providing complete and unconditional immunity. It has put a condition of providing protection against proceedings under the Income Tax Act. So, if a person has earned income by violating other laws, he/she can still be grilled under the Act.
To ready more about this story and Personal FN’s views over it, please click here.
Impact
If you try to time your entry and exits when investing in any asset class, it is very unlikely that you would be able to do so successfully every time. Those who follow price momentum and base their actions on what other investors and market participants feel about the asset class are likely to invite trouble someday.
Now take the example of people who have suddenly become interested in buying gold at this juncture. After recording an all-time high in 2011, gold prices drifted sharply in next 3-4 years. Not many seemed to be interested in buying gold then. However, from the beginning of the Calendar Year (CY) 2016, the gold prices have shot up around 23% in India. The same trend has been observed in the international markets as well.
Does gold look attractive?
Data as on July 19, 2016
(Source Ace MF, PersonalFN Research)
Uncertainty about prospects in China, political problems such as Brexit in the Eurozone, and unclear stance of the Federal Reserve (Fed) in the U.S. in the aftermath of Brexit is keeping global investors optimistic about gold prices. Investors in India seem to be keen on joining the bandwagon as well. As you know, traditionally Indians have been buying gold in physical form, but of late the new avenues are opening up to take exposure to gold. You may buy Gold ETFs (Exchange Traded Funds), or you can invest in Sovereign Gold Bonds.
To ready more about this story and Personal FN’s views over it, please click here.
|
| © Quantum Information Services Pvt. Ltd. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Private Limited Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 CIN: U65990MH1989PTC054667 |