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| November 14, 2014 |
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| Weekly Facts |
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Close |
Change |
%Change |
| S&P BSE Sensex* |
28,046.66 |
178.03 |
0.64% |
| Re/US $ |
61.56 |
-0.14 |
-0.23% |
| Gold Rs/10g |
26,100.00 |
350 |
1.36% |
| Crude ($/barrel) |
78.85 |
-3.91 |
-4.72% |
| F.D. Rates (1-Yr) |
8.00% - 9.00% |
Weekly change as on on November 13, 2014
*BSE Sensex as on November 14, 2014
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Impact 
It has been 4 years now since the Indian industry recorded a double-digit growth in the output. The lull in the industrial activity is so dire, that even the modest uptick in the growth number is reassuring these days. You see, dampened demand (especially for consumer durables), mining sector coiled in scams (rumbling the data for electricity output) and slower capex cycle; has made industrial growth anaemic.
The Index of Industrial Production (IIP) for the month of September 2014 came in at 2.5%, bouncing up from 0.5% recorded in the month prior. Manufacturing, after reporting a contraction in couple of months before, expanded to 2.5% while electricity and mining industries fared at 3.9% and 0.7% respectively.
Lacklustre growth
(CSO, PersonalFN Research)
When compared sequentially quarter-on-quarter, growth in industrial production declined to 1.1% in the July-September quarter of the current fiscal, vis-à-vis the average growth of 4.5% clocked in the April-June quarter the current fiscal year.
Therefore the industrial activity has been rate lacklustre with a see-saw trend depicted.
But there is a silver lining amid a dark cloud…
- Mellowed down inflation - Retail inflation as measured by the movement of Consumer Price Index (CPI) has fallen to an all-time low of 5.52% in October 2014 since the new series of data was launched in 2012. Easing pressure from food and fuel inflation has come much to the rescue. You see, at the retail level food inflation has fallen to 5.68% in October 2014. Likewise fuel inflation has mellowed to 3.29%, aided by softening in prices of global crude oil.
- Improvement in India’s economic outlook - For economic growth to reinvigorate the Modi-led-NDA Government has encouraged foreign investments. Prime Minister Narendra Modi’s successful visit of the U.S. is expected to bring U.S. $41 billion from the U.S. over the next 3 years according to the U.S.-India Business Council. Likewise, Indo-Sino tie-up is likely to benefit both – India and China …and the latter has committed to invest U.S. $20 billion in India over the next 5 years. Moreover, the manifold increase in Foreign Direct Investment (FDI) in itself speaks about the confidence exuded in the Modi-led-NDA Government. And with the ease of doing business in India going forward, more investments are likely to pour in. Recently, the Government relaxed the rules for foreign direct investment in construction development. The new rules make it easier for foreign companies to invest in India and many projects will now qualify for FDI through automatic route (no FIPB clearance will be required). It appears that the Government now wants to open up the construction sector so that it can deliver Prime Minister, Mr Narendra Modi’s promise to create 100 smart cities in India by 2020. In the winter session of the parliament more reform measures such as the indirect tax regime and the land acquisition bill are likely to be discussed. Moreover, now that the outcome of the assembly polls in Maharashtra and Haryana are also in favour of the Bhartiya Janata Party (BJP) it would facilitate the Government to pass important Bills in both the houses and put reforms on the forefront. So, overall confidence has been boosted and hopes are raised that the with Modi-led-NDA Government would take India on the path to long-term economic growth rate.
- Corporate results - As reported by the business standard, nearly 1,847 companies have declared their Q2FY15 quarter results. While sales have grown by merely 5.69% on an average, net profits have surged nearly 21%. This suggests that, the demand is yet to pick. Rise in net profit could be largely on account of falling energy and raw material prices.
The impact on the Indian equity market...
Thus recently the S&P BSE Sensex, one of the most widely tracked indices, crossed the 28,000 mark and there is a mood of exuberance and jubilation on Dalal street.
But PersonalFN is of the view that while the Indian equity market has scaled a new high; fundamental have to now justify valuations. Valuations have already run ahead of fundamental amid the ‘hope rally’. Although the prospects for the Indian economy appear good with Modi-led-NDA Government at the centre, from a valuation perspective the margin of safety appears to have narrowed. So far the markets have been going up on the hopes of revival. Now unless that the measures taken by the Government do not translate to economic growth and there is a revival in capex cycle; equity markets may take a breather.
Although the Indian economy appears to be in a much better position now than what it was a year back, it is certainly miles away from what a number of investors expecting it to be. Under such circumstances, role of RBI and that of the Government has become even more crucial. It remains to be seen whether RBI announces a rate cut following a deep decline in inflation or it prefers to maintain status quo. Similarly, the implementation of the reform measures taken by the Government remains the key. It will also have to play a major role in not only reviving business confidence but timely addressing the concerns of industries, especially the small scale industries.
PersonalFN believes investors need to learn from their past mistakes. During the heated market conditions of 2010; those going gaga over Indian equities met with huge disappointment in 2011 when industrial growth started fizzling out and inflation became hard to tackle. Therefore investors need to observe utmost caution while investing in equity oriented investment avenues at present. PersonalFN believes a well-directed asset allocation plan is more significant to achieving success in investing.
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Impact
The Securities and Exchange Board of India (SEBI) has planned to provide consolidated statements from March 2015 onwards of all investments done by a person. Such investments would include those done in mutual funds, shares and all other listed securities. In the interim budget this year, it was decided that every investor should get a Consolidated Account Statements (CAS) for all his investments.
In this context SEBI has already directed, Depository Participants (DPs), mutual fund houses and Registrars and Transfer Agents (RTAs) to introduce systems to facilitate and dispatch CAS.
How will it work?
RTAs and mutual fund houses would share information with DPs on monthly basis for enabling them to generate CAS. Investors having accounts with two depositories would get CAS from the one whom they started off with. However, subsequently, the investors would be given options for choosing one of the depositories. SEBI has also asked mutual fund houses and DPs to set up a proper grievance redressal system.
PersonalFN is of the view that, this is a good initiative that would allow investors to keep a track of their investments. It is very important for you to know how your overall investments are performing. Now that, it has become possible to demat your insurance policies as well, initiatives such as CAS may turn out to be more effective than expected, if regulators work out a synchronized plan.
Having said that, PersonalFN believes investors shouldn’t only “view and delete” CAS. A consolidated statement better equips you to view your portfolio at one single window, which can also thus facilitate you to keep a prudent track of your portfolio and if need be review and rebalance your portfolio wisely. You see, it is not only important to invest, it is equally important to review investments tracking their performance, their role in your portfolio and your investment objectives.
Do you think this move by SEBI is likely to encourage you to track your portfolio more frequently now? Share your views here
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Impact
In a dynamic environment, which we all live in, everything is susceptible to a change. But when the change comes from within taking prudent cognisance of the environment around, it most often does serve well.
"Change is the end result of all true learning" – Dr.Felice Leonardo Buscaglia. Sowell-said by the ex-professor at the University of Southern California, who was also a New York Times bestseller.
Even our own father of the nation, Mahatma Gandhi has so beautifully said, “Be the change that you wish to see in the world.”
And this time taking lessons from these eminent personalities, the Reserve Bank of India (RBI) is in for change. The central bank is planning to re-define its roles and functions amid a dynamic macroeconomic scenario. You see, it is contemplating changing its core purpose for the first time in over 79 years of its existence.
To read more about this news and PersonalFN’s views on it, please click here..
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Impact
“Black money” was the hot favourite topic of the then opposition parties in Lok Sabha election campaigns. No opposition party let go UPA Government on the issue of its failure in bringing much hyped black money lying at Swiss banks. BJP went one step ahead and even promised to put culprits behind bars and seize illegal black money stashed at foreign banks. Four months after having formed the Government, NDA issued a list of 3 Indians who were alleged to have parked illegal money at foreign banks.
Many of you must be feeling that the Government has betrayed you on this issue. After all, it is tough to believe that there are only 3 Indians hold money illegally outside India. The Government wasted no time in clarifying that, it had handed over a list of 627 “suspects” who could have hoarded money at foreign banks. Later, the Swiss Government reminded Indian Government about the terms of treaty for sharing information pertaining to bank accounts. Supposedly the treaty restricts the Government to disclose “in principal” account information even to the court. Whether India really recovers tax evaded money which has been dumped at foreign banks, remains to be seen. However, considering the time lapsed till now, it may not come as surprise if the actually recovered money amounts much lower than estimated previously. The simple reason is, till the Government takes actions, black money might flow out by other means. Read further it’s interesting…
To read more about this news and PersonalFN’s views on it, please click here..
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- Investing in Equity Linked Savings Schemes (ELSS) gives you dual advantage. ELSS funds not only help you save taxes but also offer you opportunity to generate good returns on your investments. Lately, it has been observed that, investors are opting to sell out from ELSS although they continue to pump in money in other equity oriented funds. Based on SEBI data, over 2 lakh folios have been redeemed from the ELSS category during April and October period this fiscal. For a similar time frame, other equity oriented funds have witnessed addition of 5.5 lakh folios. This shows that, investors are positive on equity investing but they want to book profits as well.
After the lock in period of 3 years, it is possible that investors have made good returns on their ELSS investments. Thanks to a sharp rally that has sustained for more than a year now. It has always been observed that, investors prefer to invest in ELSS funds only during last 3-4 months of a financial year.
PersonalFN is of the view that, instead of exiting good performing ELSS funds one should try to get rid of weaker funds instead, especially when markets are up. PersonalFN can help you review your mutual fund portfolio comprehensively which can aid you in the journey of wealth creation.
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Trickle-Down Theory: An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors and entrepreneurs - can stimulate production in the overall economy. According to trickle-down theory proponents, this stimulus leads to economic growth and wealth creation that benefits everyone, not just those who pay the lower tax rates.
(Source: Investopedia)
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Quote : "Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception." - George Soros
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