Long term investments pay-off Nov 27, 2009

Long term investments pay-off

Nov 26, 2009

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,854.93	69.3	0.41%
Re/US$	46.45	0.2	0.51%
Gold Rs/10g	17,890.00	700.0	4.07%
Crude ($/barrel)	77.20	0.7	0.94%
FD Rates (1-Yr)	4.50%-6.50%

Weekly change as on Nov 26, 2009

Long term investments pay-off

Impact

Almost all investors were put to the test of patience, during last year's turmoil of the global economy and everyone experienced butterflies during the roller coaster ride of the equity markets. But appreciatively, to reduce the jerks felt on this roller coaster ride, gold came to the rescue for those who had invested.

Gold and the Sensex (Source: Crisil Fund Analyser and Bloomberg)
(Base: 100)
(Note: Gold Prices taken of MCX Spot Mkt)

The above chart depicts that an investment of Rs 100 in the Sensex on October 24, 2005, has clocked a return of 117% on November 25, 2009, whereas the same investment in gold has clocked a return of 157%. Here it is important to note that turbulence in the stock markets will always continue, but the patience in staying invested will pay-off.

We therefore opine that investors should stay invested for the long term and preclude from pressing panic buttons during turbulent times. Hence, both gold and the stock markets are good long term investment options.

Convenience in mutual fund trading

Impact

Investing in mutual funds is going to be easy and convenient for the investors from November 30, 2009. The National Stock Exchange (NSE) has launched its fully automated online order collection system called National Exchange Automated Trading (NEAT) - Mutual Fund Service System (MFSS). The MFSS will be available to the member brokers, thereby allowing investors to transact in mutual funds through their AMFI certified member brokers.

Investors can:

Place subscriptions
Redeem their units
Hold units in demat form
Place orders in a physical mode

The settlement of trades will be done on a T+1 (Trading day + 1 day) basis for subscriptions, but in case of redemptions the payout will take place within the timelines as disclosed in the scheme's provisions.

We believe that the new trading platform will make transacting in mutual funds very convenient and encouraging for investors; a good move overall.

Pro-consumer mobile tariff war

Impact

The new entrant in the mobile operators market - Tata DOCOMO, was the first to deviate from the industry norms of per-minute billing, by launching per-second billing plans. The offer was a roaring success for the firm. The other players in the markets such as Loop & Vodafone too followed suite and also have such plans under their post-paid as well as prepaid schemes. This tariff war is likely to intensify further with four new companies viz. Uninor, Etisalat DB, Datacom and STel likely to launch their mobile operations this year.

This battle continues in the roaming rates with Bharti Airtel launching its new roaming billing plan - 'Airtel Turbo' on November 20, 2009. Subscribers will be billed at the slashed roaming rates of 60 paise per minute for incoming calls, while outgoing calls on the same network would cost 60 paise per minute on the same network and 80 paise per minute outside the Airtel network. Immediately reacting to this, Tata DOCOMO too introduced per second billing for roaming.

Further, from December 31 2009, mobile users can change their mobile services providers under the Mobile Number Portability (MNP). Users who wish to avail of this facility will pay a maximum of Rs 19 as the 'porting charge'. Such a measure would act as a catalyst to improve the quality of service, but would also amplify this war.

The intensifying tariff wars amongst the mobile telephone operators, has left a smile on consumers faces as this will accelerate their savings; after all money saved is money earned.

INTERVIEW

In an interview with Economic Times, the Head of Equities at Sundaram BNP Paribas Mutual Fund - Mr. Satish Ramanathan said "markets may correct by 5-10% in the medium term, but any correction is likely to be gradual. A key risk for the market is the government not delivering its infrastructure promises".

On sectors, his view was that large cap software, leading oil & gas stocks and some large cap names in the infrastructure sector are overvalued. However he's bullish on infrastructure, power, banking, and within banking, PSU banks since they are attractively valued.

He believes that interest rates are not expected to significantly rise. "The key to interest rates will be success of the government's disinvestment programme. If the disinvestment succeeds, the government will be able to keep the fiscal deficit in check, and may not have to borrow too much. But if the stake sale plan does not succeed, it could see a chain of negative events, beginning with higher interest rates."

He also mentions that "the fund house is fully invested at the moment and is willing to take the market risk and is increasing its portfolio to defensive stocks gradually, in order to cushion the portfolio in the event if markets correct".

In an interview with CNBC TV 18, the Chairman of Housing Development Finance Corporation Ltd. (HDFC), Mr. Deepak Parekh, said "India is a safe country to invest in and India will give returns". He is also of the view that markets have gone ahead before time (the stock markets have doubled since March 2009) and he fears that an asset bubble may be in the making in real estate and the stock market.

According to him, interest rates are stable but inflationary pressures however might amplify interest rates. However, he believes that currently, on account of enough liquidity in the system, interest rates will not rise for the next 6 months. He also mentioned that the chance of interest rates going down is limited.

AND OTHER NEWS...

Global rating agency Moody's has given a negative outlook for India's banking sector. This is on account of challenging economic conditions and the rising level of problem loans. The agency is also uncomfortable with the dominance of public sector banks, as government-owned banks own 72% of bank assets. However, the agency is of the view that this is unlikely to affect the credit rating of Indian banks.
The Insurance Regulatory and Development Authority (IRDA) is planning to put a cap of Rs 1.5 crore on the annual salary of chief executives, which can be paid from the policyholder's fund. Any salary beyond this could be paid as per a proposal being studied by the IRDA.
An article 'G20 in 2050', carried in the November bulletin of the Carnegie Endowment for International Peace mentioned that India will be the third largest economy in the world after China and US by 2050.
SEBI is planning to widen the product offerings for Portfolio Management Services (PMS). Portfolio managers will be able to sell Exchange Traded Funds (ETFs) and exchange traded derivatives to their clients.
The Finance and the Labour ministry are locking horns on the issue of bringing Employees Provident Fund Organisation (EPFO) under the service tax net. The Central Board of Excise and Customs have slapped a notice of recovery of service tax on EPFO. The Minister of State for Labour - Mr. Harish Rawat, said that service tax should not be levied on EPFO as there is no commercial activity.
The Government is considering a proposal to do away with the three year lock-in period for FDI in real estate. It is setting easy FDI norms stipulating repatriation of foreign investments in SPV projects. Such a move will help infuse more capital into projects. It may be an easy-come, easy-go policy, since it will also allow FDI investors to repatriate investments in projects even before three years.
NSE has become the first stock exchange to have it's presence on twitter. Investors will be able to receive live NSE Nifty tweets on their mobile phones and see these on their twitter account.
A survey conducted by the Association of National Stock Exchange Members of India (ANMI) revealed that out of 395 brokers surveyed, 60% expressed displeasure on the issue of extending the trading hours for stock markets. This puts the issue of extending the trading hours on the back burner.