  | | June 27, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 25,099.92 | -5.59 | -0.02% | | Re/US$ | 60.14 | -0.05 | -0.08% | | Gold Rs/10g | 28,350.00 | 500 | 1.80% | | Crude ($/barrel) | 113.76 | -0.39 | -0.34% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on June 26, 2014
*BSE Sensex as on June 27, 2014 | |
Impact 
To get the Indian economy back on track and instil fiscal discipline, the NDA Government has started taking tough decisions. The most unpopular so far has been the decision to hike season ticket rates of Mumbai suburban railway. There wasn't much hullaballoo against the hike in long distance passenger fared by 14.2%. But, when the rippling effect of this was seen on season ticket (or pass) of suburban local trains, which in effect saw as high as an increase of 150%; a public outcry was seen which eventually led to Government re-consider and rollback the hike on suburban trains for travel upto 80 kms.
Taking lessons from this experience and considering the already high inflation, the Government has decided to postpone decision on gas price hike by three months. There is a fear that hike in gas prices would fuel inflation. The Government wants to take some more time before taking final decision.
You see, the domestic gas prices were to be hiked from April 01, 2014 but due to code of conduct in the pre-election times, decision was postponed. If the Rangarajan Committee formula is accepted, prices of domestic gas would rise to U.S. $8.5 - $8.8 per million British Thermal Units (BTU) from the current level of U.S. $4.2 per million Btu. And recognising that this would be a sensitive move and would have implications on inflation, the Government is now of the view that it should be taken after doing more comprehensive assessment.
PersonalFN is of the view that, it is likely that the price hike wouldn't be as steep as recommended by the Rangarajan Committee, if the complex formula thereto is reconsidered. Lower price hikes may have lesser impact on inflation. Having said this, since it may be an appropriate step for energy security of India, price hikes looks imminent.
Scanty rainfall so far has exposed the country to heightened risk of inflation. If prices are hiked with immediate effect, there may be some discomfort among citizens who are already tackling with higher vegetable prices and those of other life essentials. So ascertaining the sensitivity of such a move (if implemented) the Government, ahead of assembly elections in some states the Government has now deferred the decision by three months.
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Impact
A decisive mandate to the NDA Government given by the electorates in the 16th Lok Sabha elections has completely changed the market sentiment. In pre-election days, markets were going up on hopes that India will get a stable government. After election results were out, equity markets gained further. Foreign Institutional Investors (FIIs) have remained bullish on India so far. Net investments by FIIs have been to the tune of nearly Rs 60,000 crore in first 6 months of calendar year 2014.
Would FII flows remain robust?
Data as On June 25, 2014,
(Source: ACE MF, PersonalFN Research)
You see, FII holding has risen close to 25% in top 75 India companies in the 4th quarter of the fiscal year 2013-14. Foreigners held around 22.3% in top 1,200 Indian companies in the 4th quarter ended on March 31, 2014.
After taking a dip in April, FII trend resumed in May and has gotten extended even during this month. Indian equity indices hover at their all-time high levels, at present. It has been experienced that, retail investors have started coming back to market and evincing interest again at market top.
So should you be following FIIs?
PersonalFN is of the view that, valuations are expensive and therefore following momentum and investing at current levels is risky. FII flows are volatile and may quickly reverse if any bad news erupts. FIIs have invested in India on the hope that the economy will start performing and growth would come back.
If corporate profits fail to show a turnaround and economic activity remains stagnant, FIIs might be disappointed and may offload equity. At present, inflation remains the biggest threat to the economic recovery. Progress of monsoon has been slow and rainfall has been weak so far. First budget of the Modi led NDA government would be interesting to watch and FIIs would look for pro-growth announcements. Having said this, events such as Iraq crisis would show impact on Indian markets too, affecting the FII investments.
PersonalFN is of the view that, instead of looking at FII trends and investing in equities, investors should follow their personalised asset allocation and maintain exposure to equity as prescribed by your financial Planner. Following a right asset allocation and holding suitable investment avenues within each asset class, along with discipline in investing would determine your success while investing.
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Impact 
If you frequently operate your bank lockers or prepay bank loans in cash, don't forget that an invisible eye is watching you. Financial Intelligence Unit (FIU) and Indian Banks' Association (IBA) have prepared a list of transactions which are termed as suspicious. Banks would be required to track them closely and report such transactions to FIU. Recently, IBA advised banks to include more parameters to their monitoring systems for more effective tracking.
You see, the prevention of Money Laundering Act, 2002 requires every bank to provide details of suspicious transactions to FIU irrespective whether they are performed in cash. A transaction is called suspicious if:
- It leaves scope for any doubt that it may involve proceeds of crime
- Seems to be performed under unusual circumstances
- Involves unjustified complexity
- Lacks economic rational and bonafide purpose
The role of FIU...
FIU was set up by the Government of India in 2004 as a national agency to curb money laundering practices and related crimes. FIU is an independent body reporting directly to the Economic Intelligence Council (EIC) headed by the Finance Minister. FIU receives, processes, analyses and disseminates information pertaining to suspicious financial transactions.
Banks submit four types of reports to FIU which include:
To read whether the aforesaid steps can indeed help and PersonalFN's view, please click here.
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Impact
As we all know much hopes are rested on the Narendra Modi led NDA Government for 'acche din' (or a better future). In fact the BJP led NDA won the 16th Lok Sabha election promising heydays to the electorates, a change for the good; amid a mood of anti-incumbency.
But in little over a month of its Governance, the NDA Government has given a rude shock.
Recently, the Railway Ministry increased passenger fares by 14.2% and freight charges 6.5% effective June 25, 2014. Now, while the hike seems quite reasonable per se, it has hammered hard on the season ticket (or pass) of suburban local trains in Mumbai. For some routes and destination in Mumbai, the hike has been as high as 150%. The tweak here is that, monthly fares for suburban and non-suburban services shall be charged on the basis of 30 single days, instead of the current 15 single days; which has left fares double and more than double in some cases.
It is noteworthy that, for a place like Mumbai which has expanded horizontally (and vertically), even a distant suburb today is considered very much a part of this city of dreams, where the aam admi travels by Mumbai's lifelines i.e. the local trains, to earn his bread and butter; the fare hike certainly a big pinch on the aam admi's pocket, which could lead to household budgets get awry.
To read more about this news and the view of PersonalFN over it, please click here.
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- As you know, equity markets remained sideways for almost last 3 years. Many investors who invested in equity during the 2006-07 didn't make money until recently. As a result, retail participation in equity and equity oriented mutual funds dipped considerably. Due to redemption pressure Indian mutual funds remained net sellers for months. On the other hand, high inflation left little surplus in the hands of investors to invest.
To give push to business of mutual funds, Association of Mutual Funds of India (AMFI) is keen on getting a separate tax slab dedicated to mutual fund investment only in the forthcoming budget. AMFI has also of the opinion that minimum tax slab for individuals should be raised. At present U/S 80C, investments in notified mutual fund schemes qualify for tax deduction. If suggestion of AMFI is accepted, there would be a separate limit given only to investments in mutual funds.
PersonalFN believes if tax slabs are revised and additional limit is given to investors of notified mutual fund schemes, asset base of mutual funds may grow. Having said this, PersonalFN is of the view that, performance of a fund is important for retaining investors. Therefore, mutual funds need to perform if they want to grow their business. Such incentives may be helpful, but not the only way of garnering more business.
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Money Laundering: The process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source."
(Source: Investopedia)
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Quote : "Optimism.. is the enemy of the rational buyer." - Warren Buffett
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