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| January 23, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
29,278.00 |
1156.81 |
4.11% |
| Re/US $ |
61.71 |
0.36 |
0.58% |
| Gold Rs/10g |
28,150.00 |
650 |
2.36% |
| Crude ($/barrel) |
46.20 |
-1.43 |
-3.00% |
| F.D. Rates (1-Yr) |
7.75% - 8.75% |
Weekly change as on on January 22, 2015
*BSE Sensex as on January 23, 2015
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Impact 
After flooding Indian markets with capital for most part of the 2014; Foreign Institutional Investors (FIIs) started booking profits towards the end of the year. Between December 10, 2014 to December 26, 2014 FIIs dumped Indian equities every single trading session. Net outflows totalled in excess of Rs 8,500 crore in that fortnight. It seemed that, the outflows may continue even in January as well. In first 15 days of the New Year, FIIs sold Indian equities approximately worth Rs 1,450 crore. However, for the past one week FIIs have been buying intensively in Indian markets. Domestic Institutional Investors (DIIs) also seemed to be bullish on equities. As a result, beating previous high, markets marched towards a new peak recently.
Uneven FII flows…
Data as on January 21, 2015
(Source: Ace MF, PersonalFN Research)
As you may be aware, markets have been rallying so far without any major correction. Those who are waiting to enter markets may be afraid to step in at these levels. On the other hand, those who are already sitting on hefty profits might be wondering how long they shouldn't sell. PersonalFN discourages such speculation. Nonetheless, it still remains important for you to know how markets are likely to behave going forward.
Global as well as domestic factors are driving markets up. But at this stage, valuation has become a concern for Indian markets. Prospects of the economic growth might be looking up, but most of the positives are likely to have factored in. Falling crude oil has been a boon to Indian economy as it directly lowers the import bill, in turn helping nation preserve its foreign exchange reserves. There are huge expectations from the Government on the reform front. The Government is trying to implement its agenda by taking some tough steps such as issuing ordinances to promote business growth. In a surprising move RBI recently lowered policy rates by 0.25 bps, thereby showing its willingness to support growth when macroeconomic conditions allow it to do so. Such domestic positives are keeping FIIs hopeful about India.
But as said earlier, market valuations are not supportive, considering lacklustre performance of Indian companies in the third quarter of the current Financial Year (FY) 2014-15. As reported by Business Standard, as on January 23, 2014, Indian companies have seen poor sales growth and lacklustre profit growth. A sample of 248 companies has witnessed growth of -3.89% on an average on Y-o-Y basis in Q3. The growth in net profit has averaged at about 5.71% in Q3. This suggests that, markets might be over enthused about the future growth.
To add to worry, Stimulus Package announced by the European Central Bank (ECB) may keep risk appetite of global investors high. ECB has announced a stimulus package of 1 trillion Euros (about USD 1.14 trillion) which translates to bond buying worth 60 billion Euros every month, until September 2016. Such an aggressive stimulus programme may keep global markets liquid. PersonalFN believes, easy liquidity may keep FIIs upbeat about India.
Given below are the reasons why you shouldn't follow market momentum…
- Possible positives about Indian economy might have already been factored in
- Corporate results don't look very promising just yet
- At present, Indian markets are expensive
- Easy liquidity may keep Indian markets expensive for long putting even more performance pressure on the Government as well as corporate Inc.
Any rally that is not supported by the strong performance of economy and improving fundamentals of businesses runs a risk of turning ugly towards the end. Sudden change in the market sentiment may result in heavy selling by FII which would drag Indian markets.
PersonalFN is of the view that, investors should avoid speculating on the direction of the market. Now that the NDA Government is going to present its first full budget next month, there would be an expectation build up in the market. Possibly the upbeat sentiment may drive markets even higher but you shouldn't take any impulsive decision.
PersonalFN believes, investors should focus on their long term financial goals and stop investing in equity looking at the level of index. Instead, you should chalk out a personalised asset allocation plan and stick to it. Mutual funds offer you a great chance to create long term wealth. However, there is no substitute to careful selection. Periodic rebalancing of your portfolio helps you stay away from speculation.
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Impact
Investing in right mutual funds is important but keeping a track of your investments is even more important. It is possible that, you opted for dividend option while investing in mutual funds, but later forgot to monitor the dividend payments. In extreme cases it may even happen that, an investor redeemed a mutual fund but didn't keep a track whether he received the payment from the mutual fund company. If you think it is impossible that, a person will forget about his own money; then just read this. As reported by the economic times, dated, January 15, 2015, the Indian mutual fund industry had around Rs 510 crore worth unclaimed dividends and nearly Rs 345 crore worth unpaid redemption requests as on November 30, 2014. The number of folios that have unclaimed amounts are roughly 27.7 lakh.
So what happens when dividends and redemptions remain unclaimed?
The money belongs to you and it would continue to belong to you. Only that, money that is unclaimed, is put in money market mutual funds, if the amount remains unpaid for 3 months from the date of dividend declaration. Those who claim their dues during first 3 years from the date when the payment became due get paid based on prevailing Net Asset Value (NAV). However, those claiming after 3 year are paid at the NAV that prevailed at the end of 3rd year. Mutual funds are allowed to charge 0.50% fee on such unclaimed amount. Income earned by fund houses must be utilised for investor education programmes as per mandate.
Can this be avoided?
You can avoid falling in such situation if you follow some simple measures. While you invest in a mutual fund, you make sure that, you opt for Electronic Clearing Services (ECS) route. It has been observed that, those who don't opt for ECS route are more likely to face the issue of non-payment. This is because, mutual funds send cheques to postal address, and if the cheque is undelivered for any reason, it returns to the fund house and stays unclaimed, if the investor fails to fallow up with the mutual fund. Thus, PersonalFN suggests that you should always keep a track of your investments and opt for ECS mode.
Steps taken by the regulator…
Securities and Exchange Board of India (SEBI) has asked Association of Mutual Funds of India (AMFI) to ensure that, it introduces an online platform to help investors get complete information pertaining to unclaimed dividends and redemption money. Investors as well as their legal heirs can access this platform.
PersonalFN is of the view that, SEBI has made a right move which might help investors easily claim their dues. PersonalFN also believes, investors need to maintain their own records too so that, they can easily identify discrepancies.
Do you think, steps taken by SEBI would help you track your unclaimed dividends better? Share your views
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Impact 
The Reserve Bank of India (RBI) cut policy rates by 25 basis points (bps) in a surprise move on January 15 on account of easing inflation and expectations of inflation, among other factors. This rate cut came in after a long wait as the RBI had maintained a status quo for quite some time. However, now that it has cut rates and has stated that it won't mix up its monetary policy stance, there might a plenty of bond issues in the market soon.
Here's why...
The reason for the same is that when interest rates decline, it becomes cheaper for companies to borrow funds and becomes easier for banks to secure deposits. In a falling interest rate scenario, their appetite for credit increases. Since the time RBI has cut rates (January 15) companies such as HDFC, Oriental Bank of Commerce, National Housing Bank (NHB), among a few others, have already raised funds. Many others such as Indian Railway Finance Corporation (IRFC), Power Grid, Rural Electrification Corporation and so on might be issuing bonds shortly.
Even investors, including Foreign Institutional Investors (FIIs) are enthusiastically purchasing bonds as the markets are expecting further rate cuts in the future. If rates fall, the prices of bonds rise, as they share an inverse relationship. Thus, investors believe that buying bonds now will be profitable as their prices might rise later. Falling interest rates are a win-win situation for both issuers and investors.
To read more about this news and PersonalFN's views on it, please click here..
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Impact
Gold is a much talked about asset class due to the various benefits that it offers. People prefer gold as it is a store of value. Indians are in fact one of the largest consumers of gold in the world. Last year, many investors who had invested in the yellow metal were worried due to the falling gold prices. However, they might have a reason to smile as the picture seems to be changing now.
So far, rising dollar made gold look unattractive. However, with changing economic and political scenario in some parts of the world, investors seem to be getting back to safe haven asset.
To know more about this story and to read our views, please click here
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- Those who invest in Equity Linked Savings Schemes (ELSS) at eleventh hour, often fill up application forms in a hurry. Sometimes, investors just sign and advisors fill up the forms. In case, either the investor or advisor selects dividend option but forgets to give further choice of "pay out" or "Re-investment"; the default option is selected; which is reinvestment in most cases. If investors don't bother to check the sub-option selected, they face a trouble while redeeming the fund after the lock-in period of 3 years gets over. Units bought by "re-investing" dividends can't be redeemed before expiration of 3 years from the date of purchase. Thus, investors face a difficulty while encashing their investments.
To overcome this, Securities and Exchange Board of India (SEBI) has directed mutual funds to stop offering re-investment option under ELSS funds . Instead, "Dividend Transfer Plan (DTP)" shall be introduced. Whenever the ELSS fund would declare dividend, units of any other open ended funds (as per the choice of the investor) will be bought under DTP option. For existing investors who have selected the "re-investment" option the default option will now be the "dividend pay-out".
PersonalFN is of the view that, SEBI has taken a rational step which will help investors avoid hassles at the time of redeeming the ELSS fund. PersonalFN also believes investors should avoid investing in ELSS funds at the last hour and plan right from the beginning of the year.
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Quantitative Easing: An unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes.
(Source: Investopedia)
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Quote : "Over the short run, however, the fundamentals are often overwhelmed by the deafening noise of speculation—the price at which the stock market values each dollar of earnings." - John C. Bogle
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