  | | June 06, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 25,396.46 | 1179.12 | 4.87% | | Re/US$ | 59.33 | -0.29 | -0.49% | | Gold Rs/10g | 26,960.00 | -310 | -1.14% | | Crude ($/barrel) | 108.12 | -2.84 | -2.56% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on June 05, 2014
*BSE Sensex as on June 06, 2014 | |
Impact 
The Indian equity market was ascending even before BJP led NDA won the Lok Sabha election, as the exit polls were predicting a roaring victory for the BJP led NDA, amid a mood of anti-incumbency in the country, where much hopes were rested on Mr Narendra Modi as the BJP's Prime Minsterial candidate. So there was a hope rally. And now with BJP alone conquering 282 seats and the NDA, 336; the decisive mandate has further fuelled the hope rally. There is hope yet of a better tomorrow, although the NDA Government is yet to make policy announcements.
The S&P BSE Sensex in the week gone by crossed the silver jubilee mark and we if assess market capitalisation wise, the mid cap & small cap segment has outshone large caps. Foreign Institutional Investors (FIIs) are exuding confidence in India and are putting in money aggressively. And now soon after the election results, even the retail investors are evincing interest in equity once again at the top.
Cash market volumes and activities by equity oriented mutual funds are the dependable indicators to gauge the level of confidence of retail investors. At present, both indicators suggest that, retail investors are finally getting back to equities. In the month of May, average daily turnover on BSE and NSE put together was worth Rs 34,700 crore as compared to the average volume of Rs 21,900 recorded in the first 4 months of 2014. There isn't much change in the delivery based transactions which suggests that investors are buying and preferring to stay invested on hopes.
It is noteworthy that even mutual funds who were net sellers during September 2013-April 2014; have net bought in May. The net inflows by mutual funds in equity market were close to Rs 1,500 crore. In pre-election times and even during elections, mutual funds had preferred to stay invested as revealed by their lower cash holdings. Moreover, in mutual funds in the race to garner more AUM, they capitalised on the positive sentiments in the market and launched a number of New Fund Offers (NFOs).
So, are hopes enough for the market to ascend further and you to buy?
Well, PersonalFN is of the view that after a decisive mandate given by the electorates it's time for the NDA Government to deliver and live up to the expectations. The Indian equity market is finding solace in the trade deficit and CAD data while economic growth is yet languishing. Market seems to have run ahead of fundamentals, as the earnings of companies have not justified the level of the index.
Although it is a good that retail investors are getting back to equity investing, it is rather worrisome to us that they are investing at the market top which requires fundamental as well for the rally to sustain and ascend further. A rally on mere hopes cannot sustain for too long.
PersonalFN is of the view that, in such a scenario, while you may invest in equity as allowed by your risk appetite and commanded by the asset allocation meant for you, it would be wise to stagger your investments. You shouldn't buy aggressively, rather buy selectively. Thoughtlessly investing or speculating can be hazardous to your wealth and health. You see, don't allow history to repeat itself, where in the aftermath of 2008-09 investors burnt their fingers and opted to sit out of the market nearly for 5 years.
Whether you are buying stocks or mutual funds you need to choose them carefully. Amid times such as now, PersonalFN through its exclusive mutual fund research service can help you identify mutual fund schemes which you should buy and hold in your portfolio and those you should clearly avoid. PersonalFN will help you pick winning mutual fund schemes for your portfolio, which would stand by you in sickness and health.
Is it a greed? Or fear of losing this opportunity? Would markets reward retail investors this time? Share your views here.
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Impact
"I determine the monetary policy I say what it is. The Government can fire me, but the Government doesn't set the monetary policy. So, in that sense, am I independent. Well, I am happy to talk to the Government. I am happy to listen to the Government but ultimately the interest rate that is set is set by me," - Dr Raghuram Rajan, the Governor of Reserve Bank of India (RBI) said at St. Gallen Symposium in Switzerland."
You see, Dr Rajan was answering a question at a programme which was broadcasted on Bloomberg TV. These statements came about 10 days before Lok Sabha election results were announced. With this Dr Rajan served two purposes. First, he impressed upon global investors that, RBI is independent in India. And the second and slightly indirect, was to remind the upcoming Government about autonomy of the central bank. These statements were important especially considering that, Mr Narendra Modi was the then favourite PM candidate. However, the RBI Governor also stated that RBI welcomes interaction with the Government.
Many expected that there may be frictions between the finance ministry and the RBI. But going by progress till now, it seems both are gelling up nicely and working in co-ordination. After, Dr Rajan announced second bi-monthly policy on June 03, 2014, finance minister commented on it positively. Respecting decision of RBI, finance minister, Mr Arun Jaitley, was quick enough to praise the RBI Governor for his maintaining balance between inflation and growth. Moreover, Mr Jaitley also promised to strike balance between growth and inflation and called for tight fiscal management. He stated that the ministry would work in co-ordination with RBI.
PersonalFN believes these may be positive signs. If the Government works in close co-ordination with RBI, fiscal policy and monetary policy could be more effective. RBI would expect the Government to take tough actions for containing inflation and deficit. And the Government would expect RBI to maintain value of rupee stable and provide relief to borrowers by lowering policy rates.
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Impact
For last two consecutive years, economic growth in India has been below 5%. Global slowdown, anaemic manufacturing growth and ordinary performance of agriculture have been some of the main reasons for slacking growth. But above all, extremely slow development on infrastructure front caused Indian economy to advance at snail's pace. Lack of reforms, bureaucracies, red tape, and weak business sentiment negatively affected the infrastructural development in the country. As a result, performance of industries forming a part of infrastructure theme was affected. The investors betting on these sectors were disappointed too.
Now that NDA has come to power, expectations have heightened. It is expected that, Prime Minister Mr Narendra Modi himself will set the ball rolling by putting pressure on the cabinet to boost infrastructure growth. On this hope, investors are re-looking at infra theme. Infra stocks have been buzzing these days and thus infrastructure funds have also generated impressive returns.
It's a high tide again for infra theme
Data as on June 03, 2014
(Source: Ace MF, PersonalFN Research)
But before, you get swayed away by the upbeat sentiment, it is important for you to assess the situation carefully. You need to know challenges before NDA Government. It would remain crucial to see how Government responds in challenging times.
Why infrastructure growth slowed?
Under UPA II regime infrastructure growth took a major setback mainly due to:
- Policy paralysis
- Delays in land acquisition
- Environmental clearances
- And constraints of funds (especially in railway projects)
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
Since NDA Government has come to power, fortunes of Public Sector Undertakings (PSUs) seem to be changing. Governance related issues have always raised doubts about functioning of PSUs. But as expectations from NDA Government are on a rise, the PSU theme appears to have rejuvenated.
There was a sharp rally in PSUs, due to which S&P BSE PSU index outperformed broader markets over the last 2-3 months, generating good returns for investors. And amid the exuberance in the market, a proposal is floated by the Securities and Exchange Board of India (SEBI) - intended at reducing Government stake in PSUs - which if implemented, could even help the Government in its commitment on fiscal consolidation.
So, what does SEBI's proposal say?
SEBI has proposed that minimum public shareholding in PSUs be raised to 25%; which at present stands at 10%.
To read more about this news and the view of PersonalFN over it, please click here.
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- As markets are on an upswing these days, people who invested in Unit Linked Insurance Plans (ULIPs) a few years back are surrendering their policies. This is not only affecting policyholders themselves but also the business of insurance companies.
PersonalFN believes this is an effect of huge mis-selling that had happened during 2005-08. ULIPs were sold as mutual funds. But unlike mutual funds, ULIPs had huge front loading which left little margin for making good profits in last 5-6 years. Markets were turbulent as well. In the initial years, charges happened to be high in ULIPs. Disappointed investors were late to realise that they had been given falls promises by insurance agents. Therefore now those who completed the mandatory lock-in period of five year are surrendering their policies.
PersonalFN believes insurance should be treated as hedge against risks to one's life. Buying a term plan is a simple and economical way of getting yourself insured and safeguarding well-being of your dependants.
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Cash Market: The marketplace for immediate settlement of transactions involving commodities and securities. In a cash market, the exchange of goods and money between the seller and the buyer takes place in the present, as opposed to the futures market where such an exchange takes place on a specified future date.
(Source: Investopedia)
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Quote : "Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic" - Warren Buffett
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