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| July 17, 2015 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
28463.31 |
801.91 |
2.90% |
| Re/US $ |
63.52 |
-0.13 |
-0.21% |
| Gold Rs/10g |
26,040.00 |
-310.00 |
-1.18% |
| Crude ($/barrel) |
56.26 |
-0.03% |
-0.05% |
| F.D. Rates (1-Yr) |
6.75% - 8.50% |
Weekly changes as on July 16, 2015
*BSE Sensex as on July 17, 2015
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Impact 
It is believed that investments in midcaps reward over a longer term as midcap companies need considerable time to grow in size. However, had you invested in a midcap oriented fund one year ago; it would have pleasantly surprised you now. This is because midcap stocks have generated quite attractive returns for the investor over the last 1 year.
As can be seen in the graph below, the S&P BSE Mid-Cap index remained range bound for quite some time over the last 5 years, however, recently, i.e. in the last 1 year; the index has been on an upswing and has touched its all-time high on July 16, 2015.
Sharp rallies are making midcaps expensive...
(Source: ACEMF, PersonalFN Research)
(Data as on July 16, 2015)
(Base = Rs 10,000)
What's driving midcaps up?
Midcap stocks are seeing a gush of money from local institutions, which have parked about $1.9 billion last month into the midcap space (as per a report by Economic Times dated July 07, 2015). Mutual fund houses too are seeing midcaps as attractive investment opportunities.
Foreign as well as domestic investors have been hopeful about the economic recovery. Investors expect Indian companies to benefit from the reform agenda of the Government and thus are betting on many smaller companies, driving their stock prices up. As a result valuations have become expensive in the midcap space.
Greek sovereign debt crisis which shook the whole world and the possibility of bad monsoon in India had put some pressure on Indian markets in past 2 months. However, as Greece managed to secure one more bailout package, risk aversion has ebbed.
Although a risk of high inflation has resurfaced, falling crude oil prices are expected to help India keep inflation under control. Other positives such as increased spending of the Government on infrastructure development and jump in the indirect tax collections are keeping the market sentiment upbeat.
There is a general feeling that, initiatives of the Government such as 'Digital India', 'Make in India' and its thrust on withdrawing the bottlenecks in the development of industry by launching programmes such as 'Skill India Mission' would provide Indian companies huge opportunities. Moreover, important changes in the regulatory framework and amendments to existing laws along with introduction of some new laws is expected to facilitate smooth functioning of businesses.
Should you invest in midcap funds now?
As said before, due to sharp rallies witnessed in the midcap space, valuations have become expensive. In simple words, all probable positives might have already been factored in and markets would expect incremental positive news flow going forward. This has made many investors go stock specific and in future, broader rallies may not be experienced unless there is a significant improvement in the corporate earnings.
Midcaps are exposed to a dual risk; broader sell off in the markets due to global or domestic negatives and earnings disappointment considering high expectations of investors reflected in the high valuations.
While there is no harm in investing in a midcap oriented mutual fund even now, PersonalFN is of the view that funds that follow market momentum must be avoided, as this kind of an approach can be very dangerous for your portfolio. Instead of speculating on the market movement, you must draw a suitable asset allocation strategy for investing your hard earned money. Those who wish to invest in a midcap fund must perform thorough research to identify winning mutual funds that have the capability of boosting your portfolio returns. Opting for Systematic Investment Plans (SIPs) may help.
Do you think it is yet safe to invest in midcap oriented funds now? Share your views here.
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Impact
Everyone wants to save for one's retirement. Having no money in the golden years can be worse than a nightmare. The Employees' Provident Fund (EPF) was launched to help people working in organised sector create a retirement kitty by transferring some portion of their salaries every month into the fund.
Till now, the EPF money collected was invested only in the central and state government securities. After many years of debate, the labour ministry lately allowed EPFO to invest in equities through Exchange Traded Funds (ETFs).
The amount that the EPFO will invest will be 5% of its incremental corpus (about Rs 5,000 crores) per year. It will invest money on the condition that the expense ratio of ETFs is lowered to 0.10% (from 0.2% - 1.20%) and the tracking error is minimised.
What will happen if EPFO pumps in money into capital markets via ETFs?
- Being the second largest Domestic Institutional Investor (DII), EPFO would play a crucial role in providing stability to the Indian market in case foreign investors dump Indian equities. Investment of Rs 5,000 crores may not make any big difference, but if EPFO decides to hike its allocation to equity in future, liquidity in the market would improve
- Since money would be invested through ETFs, liquidity in ETFs would improve too, reducing the impact cost
- We might see aggressive launches of equity oriented ETFs by mutual funds
- As the overall awareness about ETFs grow, more people may start investing in them
As per the data published by the Association of Mutual Funds of India (AMFI), size of ETFs, other than gold ETFs, put together was a little over Rs 8,000 crore on March 31, 2015. Now there is a chance that ETF space may see greater response from investors. Keeping this in mind, mutual funds have started filing applications with the capital market regulator, Securities and Exchange Board of India (SEBI), for launching ETFs.
Should you invest in ETFs?
Investments in ETFs should not be done blindly. An investor, who is new to equity as an asset class may consider investing in equity oriented ETFs that capture the movement of a broader market index. But having said that, PersonalFN believes, it may be more rewarding to invest in actively managed diversified equity mutual funds, provided the selection of the funds is right. PersonalFN provides unbiased mutual fund research services.
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Impact 
Drifting away from its downward trajectory, retail inflation, as measured by the movement of Consumer Price Index (CPI) rose to 8-month high in June 2015. CPI increased from 5.01% in May to 5.40% in June on account of an upsurge in food inflation. On the other hand, inflation measured by the movement of the Wholesale Price Index (WPI) fell to -2.4% in June from -2.36% in May.
Retail inflation inched-up yet again
Data as on July 13, 2015
(MOSPI, PersonalFN Research)
What caused inflation to increase?
Food and beverages that have a weightage of about 45.86% in the CPI rose to 5.48% in the month of June in comparison to 4.80% in May. Inflation in pulses and products climbed to 22.24% in June from 16.62% in the month prior. Inflation in spices rose from 8.82% in May to 9.71% in June. Inflation in protein rich items such as eggs shot up to 5.09% (as against 0.78% in the month prior), while meat and fish to 6.99% (as against 5.43% in the month prior).
Impact on markets
Indian capital markets have remained unaffected despite of worse than expected inflation numbers for June. Positive developments on the global landscape helped mask the disappointment, which helped equity and debt market performed well. Equity indices inched up, while bond yields were rather flat. Liquidity situation was comfortable too.
Greece has been successful in securing a third bailout package which has averted its exit from the Eurozone, although temporarily. Iran has signed a nuclear deal with six major powers of the world. As Iran may now rebuild up its export market; oil prices are expected to remain lower for relatively longer time. Lower crude oil prices significantly lower the pressure on India. Moreover, bearish sentiment on China's growth prospects affected the commodity prices negatively. This might help India to keep its import bill under control.
To know more about what to expect and PersonalFN's views over it, please click here.
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Impact
It was expected that, growth in the Industrial output for the month of May would be higher than that recorded in April. However, a rise of 2.7% in the Index of Industrial Production (IIP) recorded in the month of May 2015, has been lower than 3.4% growth posted in April.
Recently released data on the performance of core industries were encouraging and had given rise to high hopes. Core sectors contribute about 38% in the IIP Index. Industries such coal, crude oil, electricity, natural gas, refinery products, fertilisers, steel and cement together posted 4.4% growth, the fastest growth since November 2014. As a reason it was widely anticipated that, the IIP numbers for May would be impressive.
But in reality, poor performance of consumer goods segment and broader lull in other manufacturing industries negatively affected the overall industrial performance in May. Furthermore, there have been two downward revisions. IIP for April has been revised downward from 4.0% to 3.4%. Similarly, that for February 2015 has also been revised fractionally downwards.
To read more about this news and our views, please click here.
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- The Automated Teller Machine (ATM) is traditionally used by people for withdrawing cash as having a debit or ATM card has been considered safer than carrying too much physical money around. However, with the changing times and technology, the National Payments Corporation of India (NPCI) feels that it has become necessary that ATMs allow the account holder to do much more.
If the plans of the organisation materialise, ATMs might soon offer facilities like registration of bills, transfer of funds, registration and de-registration of mobile number, statement request and so on.
PersonalFN believes that such changes should be welcomed as they will be extremely beneficial for the account holders. It will save time and make things simpler for both, banks as well as people at large. However, it remains to be seen, when and how these plans are implemented.
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Tracking error: "A divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark. This is often in the context of a hedge or mutual fund that did not work as effectively as intended, creating an unexpected profit or loss instead."
(Source: Investopedia)
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Quote : "An investment in knowledge pays the best interest." - Benjamin Franklin
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