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| July 24, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 28112.31 | -351
| -1.23% | | Re/US $ | 63.77 | -0.25
| -0.39% | | Gold Rs/10g | 25,350.00 | -690.00 | -2.65% | | Crude ($/barrel) | 55.37 | -0.89 | -1.58% | | F.D. Rates (1-Yr) | 6.75% - 8.50% | Weekly changes as on July 23, 2015
*BSE Sensex as on July 24, 2015 |
Impact 
Equity investors are having good times these days. After a brief correction experienced in the recent past, markets resumed their upward journey and broader equity indices reclaimed peaks tasted earlier. Global negatives such as fears of Greece exiting Eurozone, poor growth outlook along with stock market bubble in China and the question mark over nuclear deal of Iran had dragged Indian markets. Some domestic negatives such as predictions of below average monsoon, high valuations and poor momentum in economic recovery had put pressure on markets. Corporate results for Q1FY16 were anticipated to be better than those in the Q4FY15 and Q1FY15, but results so far have been mixed.
Low Growth Makes Markets Look Expensive...
Data as on July 23, 2015
(Source: NSE, PersonalFN Research)
While some index heavyweights have beaten street expectations and have recorded higher numbers, others have continued to falter. As per the result tracker of Business Standard, which has considered 225 companies that have announced Q1FY16 earnings so far, revenue growth and profit growth has been modest. Collective growth in sales of these companies has been a little under 10% on year-on-year basis while the operating margins have been close to 15%. This suggests that, companies have managed to cut down their costs, but they are still struggling to achieve higher sales numbers. Fall in crude oil prices, lower commodity prices have helped corporates curb cost.
However, looking at the current market movement it seems that, investors have given India Inc. a longer time horizon to show turnaround in the performance and market movement has been largely stock specific. Companies posting better than expected results are seeing their stock prices going up and those performing below expectations, are being punished. Nevertheless sentiments appear yet strong.
Are high valuations sustainable?
Going forward, the up-move of the market may be hindered unless corporate Inc. resumes the high growth path and economy moves closer to achieving double-digit growth.
Among the other factors progress of monsoon, implementation of legislative and infrastructural reforms, trend in inflation and monetary policy stance of RBI; are the domestic factors to watch out for. Global factors too would continue to show bearing on inflows of foreign capital in India, making Indian markets volatile.
What should mutual fund investors do?
If you are a mutual fund investor and unsure about where to invest in such a pricy market; you may opt for the SIP mode of investing. This would help you mitigate the risk through rupee-cost averaging, if the market turns volatile and power your portfolio with the benefit of compounding. But while you select funds for your portfolio do it with enough care and opt for diversified equity funds that have an appealing and consistent performance track record. If you are looking to invest in mutual funds with a five year view, here's something valuable for you.
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Impact
When you go to a medical specialist, they charge you consulting fees and you happily pay them no matter how high they are. However, it seems that, people in India are somewhat reluctant to pay fees to financial doctors or maybe they find services of financial consultants not worth paying fees. Considering the level of mis-selling that happened in financial services segment, investors are skeptical about the authenticity of distributors cum advisors.
With a view of keeping neutrality of a person advising investors on their finances, even Securities and Exchange Board of India (SEBI) recently took a stance that, there should be a clear distinction between a distributor and an advisor. In other words, it hinted that, those earning fees can't earn commissions. Going by pure data, it seems distributors don't want to work on "only for fees" model as they find it unsustainable.
As per the data published by Business Standard, dated July 23, 2015, there are close to 1 lakh registered distributors. Out of that, only about 10,000 are active which are serving nearly 1 crore investors, translating into 1,000 investors per distributor. Registered Investment Advisors (RIAs), as quoted by the Livemint dated February 11, 2015, are only around 200. Reason behind such poor enrollment numbers in 2 years till the day of reporting, is precondition that discourages advisors from being associated with distribution activities.
What makes distributors apprehensive of 'fee only model'?
Distributors believe that, a lot of effort goes into acquiring clients and depending only on fee income may make it economically inviable for them to run businesses. On the other hand, manufacturers of financial products say that, maturity and knowledge of Indian investors is too inadequate to skip the distributors' model for selling their products.
PersonalFN believes that, concerns of distributors and those of manufacturers of financial products might be real but, it can't be dined that, rampant mis-selling, overblown claims about the potential of products and commission and sales driven strategies have been equally responsible for people not willingly buying financial products. Industry has fallen short in educating investors and making them fully aware of benefits and limitations of financial products on offer.
PersonalFN has worked dispassionately to promote investor education programmes at various platforms. Investors would do well if they upgrade their knowledge. To save on costs, you might opt for direct route provided by mutual fund houses and insurance companies. PersonalFN believes distributors shouldn't lose their credibility and work in the interest of investors casting off commission oriented approach. This might also change the attitude of investors to look upon them and maybe they start paying high fees for quality services.
Do you think argument of distributors of financial products is practical and justifiable? Share your views here.
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Impact
Recently, a well-established mutual fund house made it compulsory for its employees to invest in funds floated by the company itself, if at all they plan to invest in mutual funds. There is no compulsion on any of the employees to invest in-house but these internal guidelines severely restrict the options available to the employees. Some of you may feel that, it's a good move as it will show a sense of commitment to investors of the fund house. While, there might be some among you who would call this a regressive strategy as the employees should have put in money voluntarily if they believed the funds were performing well and had a potential to do well in future as well.
What builds trust?
Despite of trying hard, mutual funds are unable to penetrate beyond a limit. Still very low percentage of population invests in mutual funds and their reach is mainly restricted to a few large cities, although they are expanding beyond top 10-15 cities now. PersonalFN believes, if employees and management invests in funds floated by their own company, it might instil some confidence in the potential investor. Even so, that should be the only thing mutual funds can do to win over investors.
To know more about this news and PersonalFN's views over it, please click here.
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Impact
Various factors have led to a bear market in commodities, in particular gold and oil, over the last year. Gold prices have fallen more than 40% since their peak at the start of 2011. Since 2012 gold has been in a continuous bear market as investors loose interest in the yellow metal.
Various factors have contributed to the fall in gold prices.
The Federal Reserve in the U.S. may increase interest rates sometime this year, which is keeping some sheen off gold. The signs of economic vigour depicted by the U.S. economy have gone on to strengthen the greenback, leaving gold to be less favourable. The Greek crisis in the Eurozone also seems to have supported the dollar. Investors haven't seemed to be moved by the Greek debt crisis to buy into gold as a safe haven, which is why there wasn't an evident reversal in the corrective for gold. Investors possibly perceived that the contagion led by Greece defaulting on IMF loan and Greeks rejecting the terms of bailout, would be limited to the Eurozone.
To read more about this news and our views, please click here.
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- Don't be surprised if you get a call from a mutual fund house to confirm whether you understand the product you have invested in. A few fund houses have started calling up their clients to identify and curb the instances of mis-selling. It has been found that, investors often fall prey to false promises made by distributors. They either invest in a product not suitable to their risk profile or unsuitable for a kind of time horizon they have. In both cases, investors suffer and brokers wash their hands off their responsibilities.
Some fund houses are going one step ahead and increasing the minimum ticket size to Rs 1,00,000 (up from current Rs 5,000) for schemes carrying high risk. They are expecting that people putting higher amount may take due care to understand the product which in a way would reduce the chances of distributors being able to mis-sell the products.
PersonalFN is of the view that, such preventive measures to curb mis-selling may go long way to create customer loyalty. However, there can't be any substitute to good performance. PersonalFN believes, investors should also try to understand the product completely before investing in it.
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Fee-Based Investment: "An investment account in which the advisor's compensation is based on a set percentage of the client's assets instead of on commissions. Contrast this to commission-based investment, in which the advisor makes money based on the amount of trades made or the amount of assets sold to the client."
(Source: Investopedia)
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Quote : "The man who does more than he is paid for will soon be paid for more than he does" - Napoleon Hill
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