  |
| December 06, 2013 |
|
|
|
|
|
| Weekly Facts |
|
Close |
Change |
%Change |
| BSE Sensex* |
20,996.53 |
779.1 |
3.85% |
| Re/US$ |
61.77 |
0.6 |
1.03% |
| Gold Rs/10g |
30,825.00 |
390.0 |
1.28% |
| Crude ($/barrel) |
111.63 |
(0.7) |
-0.62% |
| FD Rates (1-Yr) |
8.00% - 9.00% |
Weekly change as on December 05, 2013
*BSE Sensex as on December 06, 2013
|
|
Impact 
As a salaried individual you may be contributing your hard earned money into the Employee Provident Fund (EPF) account and making some provision for your golden years. You see, Provident Fund (PF) corpus that you build over your entire working life is a significant contributor to your retirement wealth. Also if you have invested in equity instruments wisely and balance your portfolio as age progresses, the process of wealth creation can even get better, enabling you live golden year of retirement comfortably.
In fact recognising this very trait of equities of being an effective wealth multiplier and a hedge against inflation; the Finance Ministry in 2008 had increased the ceiling on investment in equities by provident funds to up to 15% of the corpus from the earlier 5% (in 2003), but restricted it to equity shares of firms in which derivative trades are allowed on the National Stock Exchange and the Bombay Stock Exchange. The Central Board of Trustees (CBT), the apex advisory body of the Employees' Provident Fund Organisation (EPFO), was not in favour of liberalising the investment norms for EPF earlier, but later agreed subject to the condition that there is a guaranteed "reasonable rate of return" (a capital protection assurance) be provided by the Government. But not having received any official assurance from the Government, now EPF investments will not find their way in stock markets.
The new rules for EPF investments notified by the labour ministry in late November this year, allow retirement savings to be parked only in debt instruments. Likewise the PF department has maintained its reservation about infrastructure investments as it perceives it to be risky.
PersonalFN is of the view that, with the new investment norms for PF investment being notified, the finance ministry's prod that India's retirement savings should have some exposure to equity investment, is staved-off. The new investment norms, in our opinion will limit the scope of investment for PF money when they become applicable from the next financial year. Excluding equity and holding reservation for infrastructure investments may hamper generation of returns, thereby impeding clocking a real rate of return, which otherwise could have been appealing.
This leaves investors with New Pension Scheme (NPS), set up by the finance ministry and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), to take exposure to equity as an asset class in their endeavour to create wealth for their retirement. But in our view, NPS isn't very appealing either for creating a substantial corpus to meet your retirement need. In our view, chalking-out a prudent financial plan with the help of a financial planner, and investing wisely as per the plan laid out (which would mostly recommend you equity allocation at younger age, and then as your age progresses balance the asset allocation between equity and debt instruments), would enable you to create substantial wealth to meet your retirements needs.
|
Impact
Very recently India's Current Account Deficit data for July to September quarter (of this fiscal year) was announced. The data came in U.S. $5.2 billion or 1.2% of India's GDP reporting a reduction in gap (between value of exports and imports) and revealed an improvement over the previous quarter of the current fiscal year, where CAD had widened to U.S. $21.8 billion or 4.9% of GDP. Narrowing CAD in the second quarter of the current fiscal year was said to be on the back of turnaround in exports and moderation in imports, particularly gold. But the question is: "Is India's CAD capturing the real picture?" What about the illicit channels through which numerous goods are imported in the country?
You see, while the recently released CAD data boasts of drop in gold imports, you may be surprised to note that smuggling activity has spurred up. According to the Directorate of Revenue Intelligence (DRI) top officials estimate, 500 kilograms of gold is smuggled into India every day, with less than 1% of the illegal consignment getting booked by law enforcers. This implies a monthly Rs 4,500 crore of illegal imports at the current market price; which is a loss to the exchequer.
Why has smuggling in gold spurred up?
On an ascending trend
Data as on August 13, 2013
[Source: Ministry of Finance (Dept. of Revenue), PersonalFN Research)
Well, successive hike in import duty on gold is the main reason. Also, recognising the fact that Indians have insatiable appetite to own gold for emotional and financial reasons (making the demand inelastic to an extent), gold smuggler have fuelled their activity off late, to meet demand during festive and marriage season.
It is said that gold smugglers are adopting methods as those adopted by drug couriers to dodge the Government crackdown, by stashing gold in imported vehicles and even using mules to swallow nuggets to try to get them pass airport security. Apart from Dubai the traditional source of smuggled gold, now Sri Lanka, Thailand and Singapore are the latest hotspots. It is noteworthy that this year between April to September alone, customs officials seized nearly double the amount of smuggled gold it nabbed in all of 2012. The World Gold Council (WGC) has also estimated that 150 to 200 tonnes of smuggled gold will enter India in 2013, over and above the 900 tonnes of official demand.
The official gold imports...
In the fiscal year 2012-13, India imported 845 tonnes of gold valued at over Rs 2.45 lakh crore. And this was the main reason for CAD to hit a record high of 4.5% (at U.S. $87.8 billion) of GDP. In the first quarter of current fiscal year (i.e. for the period April 2013 to July 2013) gold imports went up to 383 tonnes from 205 tonnes in the same period last year (an increase of whooping 87%). But in the past few months official gold imports have dwindled. They were at 24 tonnes in October, compared with 11 tonnes in September, 3 tonnes in August and 48 tonnes in July.
So, PersonalFN is of the view that while CAD has narrowed down on the back of turnaround in exports and fall in imports, to us it is rather astonishing in the backdrop of spur in smuggling activity in gold; which is a loss to the exchequer. Ignoring the backdoor operations of gold imports while it may facilitate the finance ministry to achieve the fiscal deficit target (of 4.8% of GDP) for the current fiscal year, the CAD data for the recent quarter seems to be distorting the picture.
Since the official landing cost of gold has shot up with hike in import duty and weak Indian rupee, going forward too, smuggling activity is likely to buoy-up (especially in 'tola' bars or unnumbered gold bars) in the country, as demand yet looks robust ahead of the marriage season. Moreover, as mentioned earlier, smugglers are aware of insatiable appetite to own the precious yellow metal, both for emotional and financial reasons. PersonalFN believes that, with uncertainty yet looming around in the global economy and U.S. Federal Reserve still continuing with its current pace of bond-buying programme; it may push price of precious yellow metal upwards; which again may lure gold smugglers to buoy up their activity.
|
Just Released Video 8 : Assessing Your Risk Appetite (Watch Now!)
Money Simplified - Your Guide to Money & Mutual Funds is a journey to educate Investors and make one more aware about ways of managing money better with the help of mutual funds!
This initiative consists of series of video lectures, which may help you understand right from the basics of investing to planning your life’s goals.
We have just release the latest video in this series:
Video 8: : Assessing Your Risk Appetite (Watch Now!)
|
|
Impact
The year 2013 thus far, has seen several shifts in sentiments for the Indian equity markets. While the launch of 3rd round of quantitative easing by the U.S. Federal Reserve (in September 2012) and appointment of Mr P. Chidambaram as the new Finance Minister, encouraged markets to move upwards (due to reform measures taken in September last year), which mainly provided a fillip to stocks in the mid and small cap domain; in the new year 2013 bullishness ebbed and the equity markets started drifting down since February 2013.
So the mid and small caps which went up ferociously earlier in 2012, descended in 2013 and even now in the last four months while they have scaled upwards, wealth erosion in the space is evident. Speaking about large caps, while they too did witness a roller coaster ride as the markets paved, a noteworthy point is that, some trait of they being relatively safe during uncertain times is seen.
So in such market conditions, to know how to position your equity portfolio, please click here.
|
Impact
Food articles constitute a major part of the personal budget of many. Vegetable prices are hot potatoes these days while prices of other household items have also been on rise. Growing expenses make it difficult for the common man to save money. Fixed deposits have been generating negative real returns due to high inflation. Equity markets have been range-bound and have failed to reward retail investors. Under such conditions, people find solace in gold as it is considered to be the hedge against inflation. But India's huge appetite for gold weakened its fiscal position considerably as the current account balance sharply slipped in negative causing huge deficits due to higher gold imports. Now that government has imposed curbs on gold imports, retail investors appear to be in a fix.
New alternative...
To shield investors from pestering inflation, RBI has planned to issue CPI-linked bonds this month. This is in line with broader strategy of RBI to focus on retail inflation and discourage investors from investing in gold. The bond will have a maturity of 10 years and would be linked to the movement of consumer price index. The issue is likely to come in two series; the first would be open for all while the second would be reserved only for retail investors. The bond issuance will form a part of overall borrowing target of the government.
To read more about this news and the view of PersonalFN over it, please click here.
|
- Mutual fund houses which have proposed offshore products are facing clearance hurdles from the capital market regulator - the Securities and Exchange Board of India (SEBI). This is because; the regulator is concerned that it would lead to round-tripping, since offshore funds invest a portion of their corpus in India.
It is noteworthy that round-tripping is an activity in which money leaves the country and is brought back as foreign capital, which is then available as tax-breaks for overseas investors.
PersonalFN is of the view that, possibly the allocation towards India may be asked to be reduced and eventually these proposals would go through. But investors may not be lured by such funds, as they are not tax efficient.
|
Asset Allocation: "An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual’s goals, risk tolerance and investment horizon.The three main asset classes - equities, fixed-income, and cash and equivalents - have different levels of risk and return, so each will behave differently over time. "
(Source: Investopedia)
|
Quote : "In the long run, it's not just how much money you make that will determine your future prosperity. It's how much of that money you put to work by saving it and investing it." - Peter Lynch
|
|
|
|
© 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.
|