Impact 
The precious yellow metal - gold has thus far - since the beginning of the year undergone a volatile phase. After accomplishing its all-time high of Rs 29,155 in the year 2011 (on December 8, 2011) in the Indian markets steered by factors such as the following the precious yellow metal took a breather and consolidated for a while.
- Euro zone debt crisis
- Geo-political tensions across the MENA (Middle East and North Africa) region
- Depreciation in the value of Indian rupee against the U.S dollar
- Stubborn inflation in EMEs (Emerging Market Economies)
Gold prices volatility, but a soft uptrend seen!
(Source: ACE MF, PersonalFN Research)
But the chart above reveals that, broadly the trend is ascending, as smart investors prefer to take refuge under gold.
Even now while the second bailout package worth € 130 billion is extended to Greece and probability of debt swaps deal (worth € 106 billion) being a success is high, smarter investors are analysing this as a only a immediate remedy to bring the situation of debt overhang in control (by writing of private debt to the extend of 53.6%). Unless austerity measures aren’t adopted, it is expected that smart investors would hedge their risk by investing in gold (which is making the soft uptrend in the asset class evident). Similarly, while the U.S. has posted a smart recovery in its economic growth in the last three quarters of calendar year 2011, the rise in debt ceiling and ballooning debt-to-GDP ratio is still worrying, which in turn is also leading to a gradual uptrend in the asset class.
Hence given the above economic situation in the developed economies - especially the Euro zone, we are of the view that such gradual uptrend in the gold may remain intact. We believe that the classic asset class gold should always be a part of everyone’s portfolio. A 5% to 10% of allocation in one’s portfolio is ideal, and should continue to be maintained at all times, because during times of economic turmoil it hedges your portfolio against the integral risks involved.
This Week's Poll !!!
Are you buying Gold at these price levels?
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Impact
Watching your favourite television programme while relaxing on your favourite sofa, you may have come across several advertisements, which you might have found annoying, fun or even dull and boring for that matter. While many of you getting irritable about them also opt to put their TV sets on the "mute" mode. But let us tell you, not all ads are boring and irritating. Some of them are really witty and put across the message very well. For instance, some of the insurance ads bring out well the pain and suffering a person goes through while awaiting an insurance claim; pension plan ads which touch your heart as they portray a responsibility and self-respect one can maintain even during one's retired life. Then there a lot of witty ads of various FMCG companies. Thus, many of these ads are good to see and make an impact on your minds.
But have you ever enjoyed a mutual fund ad which is more of often than not based on just facts and figures. Definitely not! Well, there are valid reasons for why the mutual fund ads are so boring and dull.
To know more about the new advertising norms set by SEBI and how they will benefit the mutual fund houses as well as investors please click here.
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Impact
Many a times we get carried away by tall claims made by a distributor / agent / relationship manager about the financial products they intend to sell. Very often we also fall prey to the tall claims, and inadvertently end up making investments, which don’t suit our investment objective and / or the appetite for risk. While different regulators have emphasised on the need to curb mis-selling and attempted to preclude it several initiatives, the fact is that mis-selling is still rampant. Hence given that, we are of the view that it is vital for every investor to be responsible and prudent enough while taking investment decisions and have in place proper checks and balances to prevent from being a victim of mis-selling and to be a responsible investor.
Recently coming across a complaint of a fraud, the Securities and Exchange Board of India (SEBI) lent a helping hand to investors by laying down certain checks to be followed by investors before entrusting their hard earned money to a portfolio manager.
To know how you can protect yourself from fraudsters please click here.
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In an interview with the Economic Times, Mr Ramesh Damani - a seasoned investor and a stock broker, shared his views on the recent market rally, crude oil prices and the upcoming budget.
Mr Damani believes that the recent market rally is neither a trading rally nor a bear-market rally but the one that will take indices to a new high. "The Greek crisis has pretty much moved away, which was the worry for the market. Once, investors realised that the problem in Greece is not a contagion and it would not overwhelm the market over the next three to six months, the market moved back to where it was. It is liquidity which is driving the market. Fundamentals have not dramatically improved yet, and probably will not improve for another two quarters or so. But, as you now, liquidity is the mother's milk of a bull market," he said. However, he cautioned that if the liquidity flows into commodities it will be a headache for India. But Mr Damani is confident that the liquidity will flow into equities.
As far as crude oil is concerned, Mr Damani is bearish on oil at this point in time. He explained that in the past oil has gone up because of demand shortage but this time it's the supply shock that is causing the spike. "The Iran-US standoff has raised the risk premium of oil, but we think it's a solvable problem. It's a war where Iran has to blink. If the prices go higher, the strategic petroleum reserve will be used to bring down prices. And the US demand for petroleum and petroleum products has gone down consistently over the past year or so. In fact, people say the US is about to enter the golden age of gas. So, my feeling is that the demand-supply mismatch that was happening for a few years between 2008 and 2012 is getting balanced. So, we expect to see much softer oil prices by the latter half of the year," he added further.
On the Budget front, Mr Damani said that it is widely understood that the excise duty will be raised by 2% to make it more uniform. But he thinks that if the corporate taxes are raised it would be a worry as the market is not expecting it. "The market is looking for three things over the next three months.
It wants monetary easing by the RBI, fiscal consolidation by the government and resurgent reforms. Having said that, the market has very low expectations of some big-bang announcements in the Budget. At best, it will be an incremental Budget," he said.
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- The Insurance Regulatory and Development Authority (IRDA) has expressed its concerns over Life Insurance Corporation’s (LIC) corporate governance. IRDA’s main concern relates to the composition of LIC’s Government-appointed board which includes the chiefs of some state-owned financial institutions. The composition of the investment committee of LIC, which includes a government official, again raises issues of corporate governance, especially in the context of the share sales of state-run companies such as Oil and Natural Gas Corporation (ONGC) where the issuer is the government.
- The Employee Provident Fund Organisation (EPFO) is planning to eliminate the need for any EPFO officer to personally inspect company records. In the new system, the EPFO will ask companies to voluntarily disclose all information required to comply with the EPF Act. Based on the information, the EPFO will devise parameters to discover defaulters. The parameters will change each year to avoid companies being compliant with only certain parameters.
- ICICI Bank, Bank of Baroda, LIC and Citi Financial have agreed to form a Infrastructure Development Fund (IDF) to finance infrastructure projects in the country. This is the country’s first IDF on public private partnership platform. ICICI Bank, the sponsor of the joint venture, will hold 31% equity in the IDF followed by Bank of Baroda (30%), Citi Financial (29%) and LIC (10%).
- Chinese Premier Mr Wen Jiabao has lowered China’s 2012 growth target to an eight-year low of 7.5%. This has been done in order to boost consumer demand and to reduce the country’s (China’s) dependence on external demand and foreign capital. Lower growth will allow Beijing to reform key price controls without causing an inflation spike, so monetary policy can stay broadly expansionary to ensure a steady flow of credit to the small and medium-sized firms the government wants to encourage.
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Public Private Partnership (PPP):Involvement of private enterprise (in the form of management expertise and/or monetary contributions) in the government projects aimed at public benefit.
(Source: Investopedia)
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QUOTE OF THE WEEK
"Save a little money each month and at the end of the year you'll be surprised at how little you have." - Ernest Haskins
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Disclaimer:
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