  | | May 16, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 24,121.74 | 1127.51 | 4.90% | | Re/US$ | 59.29 | 0.77 | 1.28% | | Gold Rs/10g | 29,750.00 | -350 | -1.16% | | Crude ($/barrel) | 109.56 | 1.68 | 1.56% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on May 15, 2014
*BSE Sensex as on May 16, 2014 | |
Impact 
It was a clean sweep for BJP at Lok Sabha elections 2014. The election outcome, which was one of the most awaited events, was very pleasing for Indian equity markets. Since February 2014, market had started sniffing the victory of BJP as also indicated by exit polls. And today they are proved victorious by this democracy.
The Indian equity markets welcomed the change in Government at the centre as they cheered and went over 1,000 points (or +4.0%) in early hours of today's trade. However, since the outcome of the election was much line in with expectation, they gave off some gains due to profit booking, since most run-up had already taken place in the recent past.
Is party over?
Data as on May 16, 2014
(Source: ACE MF, PersonalFN Research)
So would the upswing continue?
Primarily, with the BJP by itself having comfortably conquered 272 mark, the risk of an unstable Government at the centre is eliminated for the market. But now the market would soon take cognisance of domestic macroeconomic scenario wherein they would assess the following amongst host of other aspects:
- How the fiscal situation of the country will be managed (now that the burden is passed onto BJP led NDA);
- How inflationary pressures are tamed (amid times when monsoons are officially forecasted to be below normal due to 60-65% chances of an El-Nino phenomenon);
- Whether the new Government can maintain the independence of the Reserve Bank of India (RBI) - which thus far has maintained anti-inflationary stance; and has impacted economic growth
- What economic policies the BJP led NDA forms;
- How they would improve infrastructure development and speed up clearance of projects that have been pending for long;
- The strategies that it adopts to create more jobs; and
- How a better economic growth rate can be clocked
Notwithstanding the above, the market would also closely keep a watch on corporate earnings and other corporate events which drive them. Also, it is noteworthy that pre-elections, Indian equity markets didn't react negatively much to global news, but now this factor too will be in the play.
PersonalFN is of the view that, in this backdrop there may not be much steam left in the market and one may encounter volatility. As a cautious stance, you could book partial profits at current levels, given that your investment objectives are met. Also there is no point speculating in the short-term as it could be hazardous to your wealth and health. You should instead invest with a long term view, but it would be wise to stagger investments to mitigate risk as volatility could persist. Don't merely invest because the markets are going up; judge your risk appetite before investing in equities. Your patience with the right strategy would be rewarding in the long-term.
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Impact 
Retail investors have slowly started getting back to market on account of exuberance and expectations built in that the BJP led NDA will be victorious and thing will change under Mr Narendra Modi as the prime ministerial candidate. During such times, the Securities and Exchange Board of India (SEBI) is also promoting equity investing. The capital market regulator is planning to make a request to the Government of India for providing more tax incentives to mutual fund investors.
SEBI is of the view that, Indians are investing little amount of their savings in capital markets, especially through long term products. To channelise household savings into long term products SEBI has made a few suggestions which include:
- Giving an additional tax incentive upto Rs 50,000 under section 80C of the Income Tax Act, 1961 for investments in mutual fund linked retirement plans.
- If taking the aforesaid step is not feasible for the Government for any reason, then limit of Rs 1 Lakh under section 80C may be hiked to Rs 2 lakh.
- Rajiv Gandhi Equity Savings Scheme (RGESS) should also be given benefit if the limit for investments qualifying under 80C is raised
PersonalFN is of the view that if the proposal goes through and mutual fund linked pension funds start getting tax sops, then mutual funds may launch pension products aggressively. However, PersonalFN believes, if you plan your finances the prudently by evaluating your risk appetite and thereafter allocating investible surplus rightly; you may not have to invest in a dedicated retirement plan launched by mutual funds. You see, mutual fund linked retirement plans are not a tailored product and thus may ignore your risk appetite and the justified asset allocation. Retirement planning has many other aspects and comprehensive planning is needed to fulfill retirement need, one of the important life goals.
As remains the question of increasing participation in mutual funds by giving tax incentive is concerned, PersonalFN believes there would be a limited success on this front. Investors may like to see their wealth growing and only tax breaks may not attract them. If mutual funds continue to launch New Fund Offers (NFOs) when markets sentiment is upbeat, and later fail to perform, investors may not be impressed. PersonalFN is of the view that, investors should carefully analyse any product before investing. Tax incentive is only one aspect.
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Impact
A visit to a public sector bank and a private sector bank brings out a noticeable difference in the way they function. Their bureaucratic style of functioning often irks many and makes them less productive. Over past few years, there's been a sharp deterioration in the asset quality of PSU banks, which in turn hindering their performance. And it is often that the Government has to infuse capital to keep PSU banks going. It is noteworthy that PSU banks account for nearly 70% of total banking activity in the country and their performance can affect the economy as a whole. To review governance of banks in India, the Reserve Bank of India (RBI) appointed a committee headed by Mr PJ Nayak (the former chairman of Axis Bank) whose comprehensive assessment highlighted several shortcomings in the governance of PSU banks.
Problems with PSU banks
The committee specifically talked about the external constraints; meaning those which can't be corrected by improving internal practices of a PSU bank. The committee highlighted the shortcomings in the governance that make PSU banks incompetent as:
- Dual accountability (where PSU banks are regulated by RBI as well as the finance ministry)
- Short average tenures of Chairmen and Executive Directors
- Uncompetitive compensation structure
- External vigilance and applicability of Right to Information (RTI)
The committee is of the view that often PSU banks are subject to obligations which are exclusively imposed on them. This makes them uncompetitive against their private sector counterparts. The committee opined that unless these constraints are removed, managements of PSU banks would continue to face similar problems even in future.
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
A NaMo wave and anti-incumbency mood in the country has brought in a perception of change in Government as 2014 elections are underway. The Indian equity markets too have been ascending and of late scaling a new high. The current market rally seems broad based and is not restricted to large caps but has gone down even with mid and small caps. But as an investor in mutual funds, has the current exuberance done good to your portfolio?. Well, it's time that you revisit your portfolio now. PersonalFN is of the view that, whenever markets rally, especially the way they have rallied over past few months; you should prudently review your portfolio. This is because, there's always possibility that some of your funds are not performing. Some funds may have exposed you to a greater risk and have generated inadequate returns. Likewise, it is imperative for you to assess, whether your mutual fund is charging you high, but generating too little. You see, the mutual fund scheme which you hold has to justify its costs. Through this article at PersonalFN we are doing exactly that for you.
To read more about this news and the view of PersonalFN over it, please click here.
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- Market sentiment has been robust since the beginning of 2014. When BJP won state assembly elections conducted in 4 states in December last year, the current market rally began. By the time pre-poll surveys announced their findings; large caps had rallied and mid cap rally was underway. Soon midcaps started outshining large caps. Riding this wave, mutual funds launched a number of New Fund Offers (NFOs) to capitalise on opportunities. They were successful in attracting decent corpus. Multicap funds mopped up the highest amount followed by the mid and small cap funds.
PersonalFN believes, investors should careful while investing in NFOs which are especially launched capitalising on the positive sentiments in the market. NFOs which aren't offering a unique investment proposition and those from fund houses which haven’t completed three years should be clearly avoided. Mutual fund houses might garner good business by launching NFOs but you must assess carefully if it is really worth investing in them.
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Tax Break: A tax break is a savings on a taxpayer's liability. A tax break provides a savings through tax deductions, tax credits, tax exemptions and other incentives.
(Source: Investopedia)
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Quote : "The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell" - Sir John Templeton
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