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| July 29, 2016 |
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Impact 
Earlier, people with excess money happened to play the horse race, these days they try to jack up the stock markets. They don’t restrict themselves to their domestic markets but try their luck elsewhere as well. However, the fundamental difference between a race course and a stock exchange is this— unlike a race course, a stock market is not a place to gamble, and it’s a place where buyers and sellers meet. Unfortunately,excess liquidity in the system makes investors overlook fundamentals. Global investors always pour money in promising markets when they don’t foresee any major risk in the short term. At the moment, emerging markets have been attracting a lot of foreign money, and the Indian markets are no exception to this trend. Recently CNX Nifty hit a new 52-week high, indicating the bullishness of investors. Market valuations are getting expensive, and unless earnings of the companies on which investors are bullish, grow, sustaining valuations might be a trouble going forward. At worst, if the flow of liquidity dries up, markets will collapse, just as a horse may, if you expect him to run at the speed of a bullet train.
The corporate performance
As per the Business Standard report, 399 companies that have reported their Q1, FY 2016-17 results so far, have witnessed their revenues growing by 4.24% and have collectively reported a rise of 7.93% in the net profit. On the other hand, P/E multiple of CNX Nifty as on July 28, 2016, based on trail earnings has been 23.69, which is quite high.
Will such high valuations sustain?
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Date: July 27, 2016
(Source: NSE, PersonalFN Research)
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Such pricey valuations will not sustain unless earnings grow at a faster pace. After falling for 4 consecutive quarters, net sales of India Inc. rose in Q4 of FY 2015-16. It seems the same momentum is unlikely to continue in Q1 of this fiscal year, given the results available so far. Moreover, fall in commodity prices had led to some improvement in bottom lines of many Indian companies that primarily consume commodities. With the on-going recovery in commodity prices, the cost savings may start fading from Q1, 2016-17. Nonetheless, so far the results of India Inc. have been better than those reported in Q1 of FY 2015-16.
Besides, stock market indices, weak corporate earnings affect corporate tax collections. As per the Central Board of Direct Taxes (CBDT) records, gross collection in corporate tax segment jumped 13.5% in Q1, FY 2015-16. But when adjusted for the refunds, the growth rate in corporate tax collection reduced to 4.43%. The Finance Ministry has estimated 9% growth in corporate tax during FY 2016-17.
What to expect?
The Central Government has recently implemented the 7th Pay Commission for Central Government employees, the State governments will also address the recommendations sooner or later. Such stimulus in the form of salary hikes is likely to give rise to demand, providing impetus to corporate earnings growth. Until then, the markets may keep rising on the expectations of recovery and fall subsequently on disappointments. What investors should do? The performance of all sectors is never alike. A few sector do better than others. Within a performing sector too, not all companies within it perform well. In short, stock picking is a tricky job, and unless you are an expert and devote time to stock selection, you should leave the job to professionals. Investing in mutual funds is a safe way to take exposure to stocks indirectly. However, even when selecting a mutual fund scheme, you need to be careful. You should invest in a consistently performing scheme of a mutual fund house that follows sound investment processes. Avoid investing in fund houses following stock price momentum and investing aggressively, based on potential earnings.
PersonalFN offers unbiased mutual fund research services to those looking for quality advice.
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Impact
Boston Consulting Group (BCG) and Google have jointly released a report on India’s digital payment market. As per their estimates, digital payments in India might grow 10 times in value terms in the next 4 years to US$ 500 billion, which is equal to 15% of India’s GDP (Gross Domestic Product). The report also predicts, by 2020, nearly 50 crore Indians will have access to the internet and roughly 25 crores would perform digital transactions.
These predictions look quite realistic, don’t they? After all, we all use more internet and more digital payment platforms to make deals these days. Digital transactions save a lot of time and paperwork on several occasions. They are seamless and easy to perform. No wonder, digital wallets are proliferating nowadays. The technological up gradations are so fast that, you don’t even need a desktop or a laptop; your mobile is good enough to transact.
So when you order a pizza or book a cab, most of you might be paying through digital wallets. The Securities and Exchange Board of India (SEBI) has taken a serious note of these changing trends. SEBI believes if you can use digital wallets for shopping, you won’t mind making investments using digital wallets. It is considering the possibility to allow you to invest in mutual funds using your digital wallets. The Capital Market Regulator is looking to capitalise on the convenience these new platforms offer. After all, drawing a check, filling a form, and submitting it to the service centre of mutual fund houses is a tedious job. Professionals, generally, have anything but time.
SEBI has been communicating with the RBI to discuss the possibility of framing rules to allow such transactions. As per the present norms, you can perform operations through e-wallets without complying with any KYC (Know Your Customer) norms if the transaction value is below Rs 10 thousand. For all transactions above that, you need to comply with KYC. E-wallets allow you to transact for any amount up to Rs 1 lakh. To avoid misuse of this route and reduce the chances of any money laundering activity, The SEBI might insist on putting some upper limit on the transaction value, in consultation with the RBI.
PersonalFN believes, SEBI has been trying to use efficiently technological innovations and new digital platforms for improving the popularity of mutual funds. While this is a step in the right direction, it may not take mutual funds farther. For improving the reach of mutual funds and attracting more investors to them, spreading financial literacy is the first step. Unless potential investors are aware of the basics of investing, it is unlikely that they would be confident enough to invest in mutual funds without any push.
PersonalFN has been working relentlessly, on various platforms, to inform and educate investors. |
Impact
Of late, the Government has invited more criticism than praise for its policies pertaining to the Employees’ Provident Fund (EPF). So be it imposing the tax on EPF, or lowering the interest rate or investing more in equities; policies of the Government went off target more than once. However, strong public reaction and the pressure of labour unions has pushed the Government on the back foot. PersonalFN has been maintaining the entire account of such events and has been writing extensively about the subject. Given below are some candid entries.
Are You A Salaried Person? You Are Born To Pay Taxes
EPF To Up Its Equity Exposure In Search Of Superior Returns
Why Finance Ministry Opposed Paying 8.8% Interest On EPF?
The Government Is All Set To Fleece Your Unclaimed PF Deposits
If you read the fourth one of the articles, you will realise how the Government has been testing the limits of the public's acceptance of strict and probably unfair policies. The Government has been seekingtochannelise unethically the unclaimed money lying idle not only in EPF but also in other Small Savings Schemes (SSS) for over 7 years to Senior Citizen's Welfare Fund (SCWF).
The Game plan of the Government is simple. To ready more about this story and Personal FN’s views over it, please click here.
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Impact
As a smart investor, you probably track the performance and progress of your investments regularly. However, it is rare to find a person in India who regularly tracks his/her credit score. For those who are not aware of this term—credit score is a score you obtain based on your borrowing history and the repayment performance. Higher credit score denotes higher creditworthiness and vice-a-versa. The Credit Information Bureau (India) Limited (CIBIL) assigns credit scores to individuals. This helps borrowers secure loans at fair terms, and it also helps banks identify the risk involved in any proposal. No wonder it becomes easy to apply for a loan and get it faster if you have a high credit score. At present, the report is a paid for service and people are often reluctant to track their credit scores. However, “paid nature” of the report is not the primary reason for the lack of popularity of credit scores among borrowers; it’s the unawareness. But there’s good news. Your credit report will soon be available for free once in a year.
Recently, the RBI Governor, Dr Raghuram Rajan, broke the news that CIBIL has planned to offer one report, along with the credit score, free every year. Dr Rajan told media that, “Going forward, by the end of the year, the Credit Information Bureau of India will start providing individuals with one free credit report a year, so that they can check their credit rating and petition if they see possible discrepancies.” RBI oversees credit bureaus including CIBIL, and all of them are governed by the Credit Information Companies (Regulation) Act, 2005. To ready more about this story and Personal FN’s views over it, please click here.
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Impact
Like every year, the deadline for filing your tax return is July 31. However, what’s unique about this Assessment year is the Income Declaration Scheme a scheme which allows the tax evaders to disclose their unaccounted income/assets and in return offers protection against any prosecution under Income Tax and Wealth Tax laws. If you think, the fight against black money ends there, you are probably missing the larger picture.
The real battle against the black money begins here…
Cash circulation in the system is the biggest source of creation of black money. India has an enormous unorganised market across industries and geographical areas. Right from candy to a piece of land, you can buy anything paying hard cash. That’s actually the root cause of black money creation. As per the estimates of Economic Times dated July 22, 2016, a yearly turnover of India’s cash transactions amounts to massive US$ 460 billion—higher than Argentina’s GDP. None of the Government agencies can monitor these transactions, and as they are not accounted anywhere, it’s difficult to assess the ones who have high cash reserves.
What’s the solution to this? To ready about the solution, please click here. |
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One of the most prominent private sector banks is about to enter the business of mutual funds. It’s good news considering that many fund houses have exited the business in the recent past. Yes Bank is the new entrant. It has received in-principal approval from the capital market regulator SEBI.
Yes Bank was in talks with a few exiting fund houses who were looking out for buyers. However, it seems talks didn’t materialise and hence now it looks like, the Bank might go solo this time. It remains optimistic about attracting its own depositors to invest in mutual funds.
PersonalFN believes, it’s better to wait for a few years to track the performance level of the fund house. YesBank might be a major entity in the banking space. However, the asset management is a different ball game.
PersonalFN will keep sharing its views with you on further developments.
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Earnings Surprise: An earnings surprise occurs when a company's reported quarterly or annual profits are above or below analysts' expectations. These analysts, who work for a variety of financial firms and reporting agencies, base their expectations on a variety of sources - previous quarterly or annual reports, current market conditions, as well as the company's own earnings' predictions or "guidance."
(Source: Investopedia)
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Quote : "The best investment on earth is earth."-Louis Glickman
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