 |
| January 15, 2016 |
| |
| |
Impact 
If you lead a sedentary lifestyle, your pulse rate is more likely to be in the range of 60-100 beats per minute. According to Richard Stein, M.D., professor of medicine and cardiology at the New York University School of Medicine, athletes and physically active people often have a heartbeat rate as low as 40 per minute,. Atmospheric Temperature, Body Position, Obesity, and Medication are primarily four factors, besides physical activity, that affect your pulse rate.
Although, healthcare is not a PersonalFN’s domain, we recently figured out a bizarre connection between the human pulse rate and rates of food grains and pulses. Specifically the rising prices of pulses. If the pulse rate of 40-100 beats per minute is considered normal in most cases; nowadays the price rise of 40%-100% on Year-on-Year (Y-o-Y) basis could also be considered normal for grains and pulses. Over the last 12-15 months the prices of majority of pulses such as pigeon gram (tur daal), Green Gram (moong Daal), Turkish Gram (mataki / moth bean), and Black Gram (urad Daal) among others have risen in the range of 40% and 100%. Pigeon gram has recorded even higher price rises, say 200% or so. The only exception has been Chickpea or Bengal gram (chana daal) where the prices are moderate.
Unfortunately, the Indian consumers have been bearing the brunt of this (ab)normality in food inflation. The trader’s cartel has its greedy hands in a massive jump in the retail prices, more than the monsoon deficiency and demand and supply mismatches, becoming the major reason for rising prices.
Sharp rise in food inflation is a worry 
Data as on January 12, 2016
(Source: MOSPI, PersonalFN Research)
December 2015 wasn’t an exception to this. Retail prices of pulses in December 2015 were 46% higher than those in December 2014. Inflation measured by the movement of Consumer Price Index (CPI) came out to be 5.61%. While at 6.40%, the food price inflation was recorded a tad higher. Apart from pulses, other protein rich items such as meat and fish also became dearer. Spices recorded the 11% Jump.
Inflation in clothing and footwear, housing and fuel and lighting was 5.74%, 5.06% and 5.45% respectively in December 2015.
However, the jump in inflation numbers wasn’t totally unexpected. The Reserve Bank of India (RBI) had predicted a rise in retail prices at its fifth bi-monthly monetary policy meeting. The worrying factor has been rise in food prices.
As reported by the Financial Express dated December 19, 2015, sowing of rabi crops, at 496 lakh hectare, has been about 5% lower this season against the 525 lakh hectare a year ago. Rabi crops accounts for close to 66% of India’s total production of pulses. Wheat sowing has lowered this year, affecting food price inflation to an extent.
As per the data published by the Central Water Commission (CWC), the water storage in major 91 reservoirs on January 07, 2016 has been lower than the corresponding period of last year. The water storage level has also been lower than the average storage level over the last ten years during the corresponding period. The problem of water shortage has been more acute in the western and the southern parts of the country.
All said and done, the RBI still looks comfortable achieving the 6.0% inflation target set for January 2016. Eventually, they want to cut lower the inflation to 5.0% by March 2017. Food and beverages category along with Pan, tobacco, and intoxicants forms almost 49% of the CPI. Therefore, rising food prices, poor sowing of Rabi crops, and lower water storage in key reservoirs pose a major upside risk to retail inflation.
How the Government has responded to the rising food price inflation
- As the farmers have little protection against crops lost due to erratic weather conditions, Minimum Support Prices (MSPs) are often steep. In the past, it has been experienced that higher Support Prices add to inflation. Moreover, fear of loss in the minds of farmers sometimes affects the total area under cultivation, as they tend to sow less to minimise losses. This is nothing but the indirect loss of agricultural produce. To safeguard them against losses and encourage them to increase production, the NDA Government had recently launched Pradhan Mantri Fasal Bima Yojana (PMFBY).
Although this hasn’t been the first crop insurance scheme, it has tried to address the issues that were unaddressed by the existing schemes. The first and foremost one being the premium rates that have been aggressively slashed. It has been decided the premium for the Kharif crop will be 2% of the sum assured, and 1.5% for the Rabi crops. Under this system, the rates range from anywhere between 3% and 15%. As against the 23% area covered under existing schemes, PMFBY envisages to cover about 50% of farmlands by 2018-19. This may propel the subsidy payment to about Rs 8,800 crore for crop insurance. No upper limit has been imposed on such subsidies. This will also help cut the red tape in providing relief and compensation to farmers after they are hit hard by the draught, floods, hailstorms, or other natural calamity.
- The other responses such as the launch of a dedicated Kisan Channel, initiatives to set up a National Agriculture Market, and establishment of price stabilisation fund have also been targeted to boost the performance of the agriculture sector. Soil health management and encouragement to increasing the irrigation facilities are targeted to raise the production.
- Introduction of electronic trading facilities will help better price discovery and curb cartelization, which is also important to bring down food inflation.
How RBI may read the inflation numbers:
Going by the RBI guidance on inflation provided in the fifth bi-monthly monetary policy statement, they had well anticipated the rise in inflation. One positive aspect is that non-food inflation has remained below 6.0%. The flip side is food price inflation has shot up making the central bank uncomfortable. That being said, the RBI may read positively into developments such as the launch of PMFBY.
RBI may adopt a wait and watch attitude before making any judgement about the future trends in inflation. The monetary policy transmission and problem of bad loans are the two focus areas that the Central bank wants to see some positive developments in before slashing policy rates further. These remain the two most important factors in deciding the future monetary policy stance of the Central bank. On the whole, RBI is unlikely to cut policy rate aggressively in 2016.
|
Impact
Contrary to investors’ expectations, industrial activities shrank by 3.2% in November 2015. As measured by the movement of Index of Industrial Production (IIP), industrial growth fell to a 4-year low. Manufacturing, which forms almost 75% of the IIP, contracted by 4.4% in November 2015. Electricity and allied sectors grew at just 0.7%, while the Mining sector registered 2.3% growth in November 2015.
Within manufacturing, those producing consumer non-durables grew at -4.7%, while consumer durables managed to show a 12.5% growth rate in November 2015.
Weakening of industrial growth 
Data as on January 12, 2016
(Source: MOSPI, PersonalFN Research)
Performance of the capital goods sector, an indicator of the strength of investment activities in the economy, was alarming low. The sector decelerated by a massive 24.4%. Intermediate goods and basic goods industries too recorded a drop of 0.7% each.
What to expect
It seems nothing much will change in the foreseeable future, but there is the dim flicker of hope that things are getting back on track. The industry has been demanding a greater push from the Government. It expects the Government to roll out much awaited crucial laws such as Land Acquisition and GST.
Recently, Chief Economic Advisor, Arvind Subramanian, called the approach of current fiscal policy into question by pointing at the feeble industrial growth and flimsy demand growth. Considering the high indebtedness of Indian companies, it remains important for the Government to invest aggressively in the economy keeping in mind associated risks.
On this backdrop, the upcoming budget session could be a crucial one. How the Government balances the fiscal prudence and growth remains to be seen. Markets may be impacted by these developments. PersonalFN believes, investors should avoid speculating on these events and stick to their personalised asset allocation.
|
Impact
Dr. Dorothy M. Neddermeyer, a Certified Clinical Hypnotherapist and an inspirational leader famously said, “Life is ten percent what you experience and ninety percent how you respond to it.”
It’s so true indeed. You might have experienced the toughest moment of your life when you were probably unprepared to face difficulties. But how you respond to the unforeseen must have affected many aspects in your life. If you were quick enough to learn from your experiences and brave enough to change the situation; you may have come a long way. If you couldn’t handle the situation rightly; life might be still a struggle for you.
“Similarly in finance and investing, your response to changing market conditions decides 90% of your success and only 10% is decided by the actual market movement. “ For example, when a few large investors unanimously feel that an asset has bad prospects, they start selling it. When views of many others concur with those of a handful big investors, the asset prices continue to fall further. This wouldn’t change anything in your life, unless you join them or prefer to shun the common consensus point of view.
In today’s world, the investment environment has become complex like never before. Tensions between two Middle Eastern countries are enough to shake the whole world up. A decision to hike interest rates in the world’s largest economy affects asset prices. Global factors have become as important as the domestic ones in determining the asset price movement.
To ready more about this story and PersonalFN’s views over it, please click here.
|
L&T Mutual Fund has been scouting for a strategic partner to offload 49% in the company stake holding. L&T is the 14th largest fund house by Assets under Management (AUM). It has around 2.0% of the market share. The fund house intends to utilise the money that will be raised through the stake sell to strengthen its distribution network. L&T Mutual Fund might fetch about Rs 620 crore to Rs 625 crore by selling the 49% stake.
PersonalFN is of the view that, though very significant, this is move is unlikely to change much for investors. Seldom do fund management change when the majority stake holders remain unchanged. Still, you are advised to closely monitor the performance of funds you have invested in.
When short-listing a fund for your portfolio, rather than the AUM size and the popularity of the fund, consistency in performance along with its risk management capabilities should be given higher consideration. |
Fiscal Policy: Government spending policies that influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883–1946), who believed governments could change economic performance by adjusting tax rates and government spending.
(Source: Investopedia)
|
Quote : “Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.”
-Warren Buffett
|
| |
| © Quantum Information Services Pvt. Ltd. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Private Limited Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 CIN: U65990MH1989PTC054667 |