  | | November 16, 2012 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 18,309.37 | (374.3) | -2.00% | | Re/US$ | 54.69 | (0.3) | -0.57% | | Gold Rs/10g | 31,775.00 | 575.0 | 1.84% | | Crude ($/barrel) | 109.14 | 2.4 | 2.23% | | FD Rates (1-Yr) | 7.50% - 8.90% | Weekly change as on November 15, 2012
*BSE Sensex as on November 16, 2012 | |
Impact 
With a view to provide additional source of funding to infrastructure projects, it is said that the Finance Ministry could soon relax investment norms to enable pension and provident funds to invest in the corporate bond market.
At present India has a very well developed and an advance Government securities (G-sec) market, but the corporate bond market lacks depth. A developed corporate bond market could indeed provide corporates to an effective fund raising avenue and reduce reliance on bank financing. "We are examining what needs to be done to deepen the corporate bond market. They (steps) are all on the anvil. We are looking at them and we will be announcing those which are feasible very quickly," said Mr Arvind Mayaram, Secretary of Department of Economic Affairs.
He also mentioned that this step is indeed needed to enable companies to bid for large infrastructure projects, or else will not be able to produce the kind of large companies. India requires U.S. $1 trillion in the 12th Five Year Plan (2012-17) to develop infrastructure and the Government expects half of the amount to come from the private sector.
We are of the view that, while the move of allowing pension and provided funds to invest in corporate bond markets could help in adding depth and develop India's corporate bond markets, aid in funding much need infrastructure, and also reward on returns; strict guideline need to be enunciated on the quality of debt papers they can buy as eventually it is investors hard earned money at stake. Also, strengthening the legal framework would be imperative for regulating the corporate debt market well. Moreover since such a move is intended to infrastructure projects, effective vigil over implementation of such projects should also be kept.
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Impact
The WPI inflation for the month of October 2012 eased marginally to 7.45% from 7.81% in the previous month, mainly attributed by a drop in food inflation (by 124 bps) to 6.62% from 7.86% in September 2012. It seems a good monsoon which led to a decent agricultural produce, led to this positive impact and thus primary articles inflation too lowered to 8.21% from 8.77% in September 2012. Within the food basket, potato prices came down 3.2% last month triggering a larger contraction in overall vegetable prices.
(Source: Office of the Economic Advisor, PersonalFN Research)
It is noteworthy that, fuel & power inflation which fell to 11.71% from 11.88% in September 2012 also helped the WPI inflation bug mellow down; but a noteworthy point is that stickiness and volatility still seemed evident in this component.
We are of the view that, while food inflation has attributed mainly to drop in the headline inflation, stickiness still seemed evident for inflation to plateau around the 7.00% plus mark mainly due to a trickling effect of high fuel prices, which could put upward pressure on both food inflation as well as fuel inflation. It is noteworthy that diesel is an essential transport and industrial fuel, and the rise in the same may have a broader impact on WPI inflation.
In a scenario where intermediate inflationary pressure persists due to fuel price increase initiated by the Government, the Reserve Bank of India (RBI) may refrain from reducing its policy rates in its 3rd quarter mid-review of monetary policy 2012-13 (scheduled on December 18, 2012), since the WPI inflation continues to remain over the comfort zone of RBI. The central bank would be watchful of the WPI inflation data, and if it indeed mellows down below the comfort zone (of 6.0% to 7.0%), we could see rate cut only in the first quarter of new calendar year. To know where to invest during inflationary times and what should be your investment strategy, please click here.
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Impact
Our country's Finance Minister - Mr P. Chidambaram seems to be finding new ways to narrow the fiscal deficit in the coming years. And all focus this time is on accumulation of wealth to achieve the same.
Recently, Finance Minister turned the focus towards the issue of accumulation of wealth and said time has come for a debate on imposition of "inheritance tax". "Sometimes I doubt whether we have taken moderation (in tax rates) too far. Have we paid little attention to accumulation of wealth in few hands? I am still hesitant to talk about inter-generational equity and, therefore, inheritance tax. I think these are the questions we should debate," he said, while addressing a National Institute for Public Finance and Policy (NIPFP) function. To read more about this news and know our view over it, please click here.
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Impact
The Index of Industrial Production (IIP), after showing some signs of improvement in the month of August 2012, contracted in the month of September 2012 as data was reported at -0.4%. Moreover, the figure for August 2012 (of 2.7%) was also revised downward to 2.3%, although the start of the festive season did help in gaining momentum. It is noteworthy that for the same month last year, IIP grew at 2.4%, but overall since the beginning of this calendar year the average growth in industrial production has been petite +0.3%. Hence if we observe, the IIP continued with its see-saw movement and made the trend seem volatile. In fact expectations of a decent figure of 3.0% or so, due to a strong core sector growth (which comprises of eight core industries viz. coal, cement, crude oil, natural gas, petroleum products, fertilizers, steel and electricity) of 5.1% and positive impact of policy measures taken by the Government were also defied on account of the slowdown clubbed with yet a high interest rate scenario. So given a a slump in industrial output, to know the investment strategy to be followed, please click here.
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- Gold caught the attention of investors during this "Dhanteras" as Investors lapped up paper gold on the special trading session at bourses. Trading volumes soared in gold exchange-traded funds (or ETFs), backed by an age-old belief among small and well-heeled Indian investors who consider Dhanteras an auspicious day to buy the yellow metal.
The country's largest bourse, the National Stock Exchange, logged trades worth Rs 1,337 crore in ETFs on Sunday as against a traded value of Rs 636 crore last year. The Bombay Stock Exchange posted trades worth Rs 895 crore this year. Both the exchanges had organised special trading session in gold ETF's between 11 am and 3.30 pm.
We believe that, festive demand has been supportive for the precious yellow metal and traditionally, during the the demand for gold in India (world's top consumer of gold) rises in the last quarter of the calendar year, and this cyclicality could push gold prices further northwards. Also given the above backdrop where long-term economic problems still persist - especially in the developed economies, we think the ascending move for gold is intact.
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Corporate Bonds: A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies.
Source: Investopedia
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Quote : "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." - Warren Buffett
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