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| April 30, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
27,011.31 |
-426.63 |
-1.55% |
| Re/US $ |
63.31 |
0.01 |
0.02% |
| Gold Rs/10g |
27,200.00 |
300.00 |
1.12% |
| Crude ($/barrel) |
62.67 |
2.13 |
3.52% |
| F.D. Rates (1-Yr) |
7.25% - 8.75% |
Weekly changes as on April 29, 2015
*BSE Sensex as on April 30, 2015
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Impact 
In coming days the NDA Government is going to complete one year in office. Over last 1 year, valuations of equity markets in India soared in an environment filled with optimism and hopes rested on the Modi-led NDA Government to put reforms to the fore. But as valuations seem expensive, it has now become increasingly essential that growth in corporate earnings catches up pace.
India Inc. in bad health...
Despite concerted efforts of the Government and Reserve Bank of India (RBI), economic growth has not accelerated so far. In the 4th quarter of the Financial Year (FY) 2014-15, when combined together, revenues and profits of companies in India have fallen sharply. As reported by Business Standard, 132 prominent companies that reported their quarterly numbers till April 28, 2015; collectively saw a fall of over 10% in top line and over 5% fall in bottom line. Although weak performance has not been very surprising; it is still slightly below expectations.
So, what do weak corporate earnings brings forth?
Discouraging corporate earnings are not only bad for markets but also for the economy as a whole. The possible repercussions of this would be:
- Markets are likely to take a pause and the rally may be running out of steam
- Market valuations would be running ahead of fundamental, thereby making them more vulnerable to downsides
- Corporate tax collection may be lower this fiscal which could put pressure on Government's finances
- Investment cycle may take longer to pick up and consumers' confidence may remain shaky for longer; which in turn may affect corporate earnings even in the coming quarters
PersonalFN is of the view that, as corporate earnings data are released there would be volatility. But volatility will be always an integral part of the market. So when the market is descending, rather than losing faith in equity, you should be investing. But while you invest take care to place your bets only on companies which have promising businesses and robust business models backed with quality managements. Likewise, while you invest in mutual funds, select them wisely and ensure that the mutual fund house follows strong investment processes and systems. Don't get lured by New Fund Offers (NFOs) unless it is a very unique and promising investment proposition. Instead of getting lured by 'Rs 10/- offer', it would be better to invest in diversified equity funds that have a dependable track record. Opting for Systematic Investment Plans (SIP) is one of the best ways to invest in mutual funds as it can enable you to counter the volatility of the market better through rupee-cost averaging and power your portfolio with the benefit of compounding.
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Impact
While buying detergents, soaps or even edible oils, you must have experienced that sometimes a shopkeeper charges you more than the printed Maximum Retail Price (MRP). Often the excuse is that the retail prices of those items have gone up but new packages are not available. If you stay in Maharashtra and encounter such a situation in future; you would have better protection against such typical malpractices perpetrated by shopkeepers.
What is going to change?
Maharashtra Government is soon going to rollout a law to prohibit shopkeepers from selling packaged commodities at a price higher than the printed MRP. The draft of 'Overpricing Act' is in final stages of completion and would soon be presented to the cabinet for approval. It is believed that the said law is the first one of its kind in India.
At present, the Legal Metrology Act, 2009, deals with cases of overpricing of packaged goods. However, there was a need to have an even more stringent law. It is expected that the proposed new law will bridge the gap.
On being found guilty, the seller would be given a benefit of doubt for the first time and he would be eligible to seek bail for his offence. Having said this, repeated offences would make his misdeeds non-bailable.
Will it help tame inflation?
Well, for inflation to be tamed it is imperative that benefits of falling prices at wholesale level are passed on to the retail consumers. Although the proposed new law may deal effectively with cases of pricing of packaged commodities above MRP, it may still fall short to deal with malpractices of retailers, wherein the benefit of falling wholesale prices is not passed on to the end consumers deliberately.
PersonalFN is of the view that, since the retail price inflation forms the basis of monetary and fiscal policies in India nowadays; containing it is a key to promote broad-base economic growth. There is a need to keep a check on pricing related malpractices. All state Governments should work in close association to protect consumers and to curb retail inflation.
Do you think the proposed law would be good enough to keep a check on malpractices of shopkeepers? Share your views here.
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Impact
Gold is not just treated as an asset class in India; but looked upon as security by millions of Indians. Thus, although the country does not have dominance in gold mining it has amassed tonnes of precious yellow over centuries. So much so that, until recently, it accounted for nearly one-third of total demand for gold in the world and owned about 10% of above surface stocks of gold. Take your own example; it is likely that you own most of your gold in a physical form, either by the way of gold jewellery, gold coins and / or gold bars.
It is this insatiable appetite and flair to own the precious yellow metal that has kept gold imports buoyant. Nevertheless, it has exposed a risk of exerting pressure on the country's Current Account Deficit (CAD) as well.
India's buoyant gold imports
# Estimated
(Source: Finance Ministry, Reuters, PersonalFN Research)
As a repercussion the Indian rupee has borne the brunt. In the year 2013 it hit an all-time low (of Rs 68) against the U.S. dollar and showed bearing on India's foreign exchange reserves.
The Federation of Indian Chambers of Commerce and Industry (FICCI) and the World Gold Council (WGC) gave recommendations to the Government of India on improving gold policy of the country. These included:
- Establishing an Gold Exchange in India
- Establishing a Gold Board
- Develop accredited refineries
- Allow Indian banks to use gold as part of their liquidity reserves
- Incentivise banks, revitalise Gold Deposit Schemes and introduce gold-backed investment
Taking inputs, the Government decided to put the idle gold to effective use and took measures to introduce Gold Monetisation Scheme vide its proposal in the union budget 2015-16; which thereby could aid in curbing gold imports. At present, it is believed that the blueprint of the Gold Monetisation Scheme is in the final stages.
To read more about this news and PersonalFN's views over it, please click here.
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Impact
Recently a 7.8 magnitude earthquake hit the country of Nepal which caused catastrophic damages to life and property. This predicament could not have been anticipated by anyone, as is the case with any natural calamity. They cannot be predicted and the potential devastation is unimaginable. From tsunamis to earthquakes all of us are vulnerable to the forces of nature. So is there anywhere we can hide, or something we can do to prevent such cataclysms? Unfortunately there is nothing that can be done to prevent them. But we can certainly mitigate the impact of them on our personal finance. One way to hedge the risk of natural disasters is by purchasing adequate insurance.
In this article PersonalFN explains 3 points one should consider for averting a financial catastrophe by purchasing insurance:
- Home insurance as a means of mitigating property risk: Home insurance would cover your house property against anything from fire to natural disasters and would provide a hedge against adverse occurrences. But while you opt for one, ensure that you read the devil in the fine print; as some insurers do not include "Act of God" such as earthquake, storm, tempest, flood, inundation and special perils at the outset.
You need to buy an add-on cover at an extra premium (which may be 20-30% more or if the building is located in an earthquake prone area, even more). The insurance for such add-on coverage is for the contents in the building and the structure. The cover for the structure will pay for the construction cost of the building. In case the building cannot be reconstructed, it will pay for the depreciated value of the building after taking into account the remaining life of the building. It is vital to note that the insurer will not pay you the current market value. Nonetheless, you should always read the reinstatement clause of the policy well. This is because the market cost also includes the value of the land and that is not covered by insurance. If you are living in an apartment, then ideally your housing society should take an insurance to protect the structure against such natural calamities. This will pay for any damages to the structure.
To read more about this news and PersonalFN's views over it, please click here.
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- In the union budget 2015-16, the finance minister proposed to make premature withdrawals from Employees' Provident Fund (EPF) subject to Tax Deduction at Source (TDS). This proposal was moved with the intention of discouraging EPF members from foreclosing their accounts.
If you opt to close your EPF account before the completion of 5 years from the day of opening and if your account has a balance of more than Rs 30,000; then it would be subject to TDS @ 10.3% on withdrawals from June 01, 2015. Moreover, if you do not have a PAN card and want to make withdrawals from your EPF account, you will be taxed at 30.9%. It is said that about 90% of the members of EPF scheme do not have a PAN card.
PersonalFN is of the view that, this provision under the Finance Bill is contrarian to the "pro-poor" stance what the Government is projecting. If this is put in practice, it is certainly not "Acche Din" for employed individuals who are beneficiaries of EPF .
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Top Line: "A reference to the gross sales or revenues of a company, or an allusion to a course of action that increases or reduces revenues. The "top" reference relates to the fact that on a company's income statement, the first line at the top of the page is generally reserved for gross sales or revenue. A company that increases its revenues is said to be "growing its top line", or "generating top-line growth".
(Source: Investopedia)
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Quote : "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this. " - Dave Ramsey
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