What is making the Indian rupee vulnerable again?   Jan 09, 2015

January 09, 2015
Weekly Facts
Close Change %Change
S&P BSE Sensex* 27,458.38 -429.52 -1.54%
Re/US $ 62.67 0.69 1.09%
Gold Rs/10g 27,050.00 170 0.63%
Crude ($/barrel) 50.16 -5.60 -10.04%
F.D. Rates (1-Yr) 7.75% - 8.75%
Weekly change as on on January 08, 2015
*BSE Sensex as on January 09, 2015

Ants may look insignificant to you but they have a potential to trouble even the mightiest elephant. Take example of Greece now. It was never a big economy. It came to light rather for wrong reasons in the recent times. Sovereign debt crisis hit this small Eurozone nation in 2011. Thereafter, it seemed threat has faded away with time but now the echo of possibility of its exiting Euro are shacking even giant economies in the Eurozone. The beginning of 2015 has not been as good as people of Eurozone nations would have wanted it to be. The currency has fallen to a 9 year low last week on speculations that, Greece might now exit Eurozone. If Greece exits there are fears that, Eurozone may start disintegrating fearing which Euro has taken a hit. Moreover, Inflation data for the month of December suggests that, the 19-member Eurozone has recorded deflation for the month. This has increased the likely chances of European Central Bank (ECB) launching a quantitative easing package, which further dragged Euro.

On the other hand, improving macro data helped U.S. Dollar gain significantly against a few major currencies of the world. Euro weaknesses made USD even stronger. On this backdrop Indian Rupee is now looking vulnerable again.
Is Rupee headed for a further fall?
Indian Rupee
(Source: ACE MF, PersonalFN Research)

Over last 3 months, INR has depreciated by around 3%; however, considering the steep fall in other emerging market currencies, fall in the value of INR appears moderate. The Federal Reserve (Fed) is expected to raise interest rates in 2015 which may cause capital outflows from India and Rupee may witness a sharp fall.

PersonalFN is of the view that, so far macroeconomic conditions and steps taken by the Government have contributed to the resilience of the Indian rupee. But there may be some hiccups in the interim. How RBI and the Government handle macro-economic conditions remains the key to rupee strength. More than domestic factors, global factors such as dollar strength, prices of crude oil and those of other commodities need to be watched closely. Weaker Euro may drive USD higher which in turn would keep affecting INR. Currency value and capital flows are interrelated and falling currency further triggers capital outflows. To clock high economic growth, reform measures are vital along with prudent monetary stance from RBI which in turn can keep the INR strong against the greenback.

Would falling Rupee affect monetary policy stance of RBI? Click here to watch this video to know more


If you are not a very disciplined and a savvy investor, now you may all of a sudden realise that, you are yet to invest for the purpose of saving tax this Financial Year (FY). January-March is the busiest quarter for those in the business of distribution of financial products. This year, there is a possibility that, your broker might try pushing a ‘unique’ product labelled as an equity oriented pension plan to you. Since we all care about our post-retirement life; it may so happen that, you invest in any such scheme without gathering adequate information about it. PersonalFN endeavours to help you make well informed choices by sharing its view on equity oriented pension plans.

What are equity oriented pension plans?
Recently, a few mutual fund houses have filed documents with Securities and Exchange Board of India (SEBI) for launching equity oriented pensions plans. Reliance Mutual Fund has already got the approval from the tax authorities offering tax benefits to the investors of the scheme. DSP BalckRock Mutual Fund and Axis Mutual Fund have also filed documents seeking approval. Equity linked pension plans has been a relatively new concept in India. So far, UTI Mutual Fund and Franklin Templeton Mutual Fund have retirement focused products but both are debt oriented ones.

In general, equity oriented pension plans would have a mandatory lock in period of say 3 to 5 years. The plan may continue until you don’t turn 60. There would be typically several sub-plans available with each varying in the maximum permissible exposure to equity, so that investors with different risk profiles can invest in the suitable plan. At the maturity, the accumulated funds may be used to buy annuity for which a fund house may tie up with insurance companies. To attract investors, fund houses may even consider offering value added benefits such as term insurance cover among others.

PersonalFN is of the view that, equity oriented pension plans offered by mutual funds is nothing but old wine in the new bottle. To ride the current boom in the Indian equities, mutual funds are trying to garner higher corpus preferably for the longer term. PersonalFN believes there is no harm in investing in such products. It is just that these products are new and have no track record to depend on. They have a lock in period and have a relatively strict exit policy. So for any reason, if your pension plan fails to perform, you would find it difficult to exit.

PersonalFN is of the view that, to take care of your post retirement needs you should follow personalised asset allocation pattern and invest accordingly. As far as equity component of your asset allocation is concerned, you would be better off if you invest in diversified equity mutual funds having dependable track record of consistent performance. You should closely monitor performance of your mutual funds and rebalance your portfolio wisely.

Do you think equity oriented pension plans would be better than equity diversified funds in creating wealth?Share your views


If you expected Maharashtra Government to give you a New Year gift, you would be shocked to know that, it has made buying property in Mumbai costlier for you. With effect from January 01, 2015; Maharashtra Government has raised Ready Reckoner (RR) rates for the Mumbai region. The ready Reckoner rate is considered a Government declared base rate for calculating various taxes including stamp duty. For the year 2015, RR rates have gone about 15% on an average in Mumbai with some circles witnessing a steep hike of upto 40%.

What will happen with this?
The move is targeted at reducing the gap between the RR rates of the property and the actual market rate. In the past it was observed that, due to huge difference between the RR rates and the market value, some buyers (enticed by builders) were reducing the agreement value by paying lesser amount by cheque (i.e. in white) and paying in cash (in black) the difference. This was done to reduce the outgo on part of various Government taxes including the stamp duty. As a result, the Government was losing onto valuable tax revenue. Use of black money is giving rise to more loss on direct taxes such as income tax due to under-reporting of income by the builders.

As now the gap between RR rates and market value would reduce drastically, buyers and the builders would be forced to register agreements at the higher rates. It is noteworthy that, property prices in Mumbai have gone up about 300% on an average since 2008; hike in RR rates has been less severe. However, this is not to say that, the move won’t have any impact on you.

To read more about this news and PersonalFN’s views on it, please click here..


If you work in a private sector, it is less likely that you get pension or similar retirement benefits from your employer. As mentioned by Crisil in one of its reports, only about 8% of total private sector employees derive pension benefits from their employer at present. Unless, private sector employers increase the coverage of pension benefits to their employees, burden on the Government to fund the pension bill may climb up significantly in future.

This is how….
As per the report published by Crisil, which has sourced demographic data from the United Nations’ (UN), older population in India may increase by about 80% by 2050. It estimates that, India will have nearly 18 crore people with over 60 years of age by 2050. Although at present, India enjoys benefits of favourable demographics, it would become crucial to see how the country protects its social security system as its population gets comparatively older in decades to come. As reported by Crisil, the Government is footing a pension bill which is as high as about 2.2% of GDP at present. The report, goes on saying that, if private sector proves unable to increase coverage of pension benefits to about 70% of the labour force, the outgo of the Government may nearly double as a percentage of GDP from current levels to 4.1% by 2030.

To know more about this story and to read our views, please click here


Try Our Premium Research Service for Full 3 Months!

Only for a limited period, we are offering you an opportunity to try our premium research service 'FundSelect’ and that too for full 3 months.

And the price that you need to pay is much lower than the benefit it can offer.

So, why are we doing this? And how can you benefit from this?

Click here to get full details...

  • Recently capital market regulator, Securities and Exchange Board of India (SEBI), notified the rules allowing smaller mutual fund houses to launch two New Fund Offers (NFOs) each, in a year. This move provided a much needed relief to fund houses which have not yet complied with the minimum net worth criterion set by SEBI. The market regulator had increased minimum net worth requirement from Rs 10 crore to Rs 50 crore last year. About 19 fund houses couldn’t meet the criterion then. Although a few have now raised capital as required, the list of non-compliant is still long. They have been given a timeline of 3 years to raise their net worth. The SEBI notification would now help fund houses not meeting the minimum net worth requirement raise Assets under Management (AUM) by launching new schemes.

    PersonalFN has always believed that, Capital requirement, if raised, would be detrimental to competition in the sector. Ranking fund houses based on the criterion of AUM size or its net worth doesn't give a true picture of how large is the investor base of a fund house. PersonalFN believes that asset management is not a capital intensive business but if regulator is of such a view then wouldn't it be wise to ask for more capital as AUM grows? At present, smaller fund houses have a higher AUM-capital ratio which in other words mean, they are bringing in more capital for getting lesser rewards.

    Having said this, allowing tiny fund houses to launch two NFOs in a year, won’t serve the purpose either. PersonalFN believes, fund houses should focus on existing schemes and try to garner more AUM by performing better in competition. Launching NFOs is just like using shortcuts for raising AUM. PersonalFN believes this may not serve any purpose as far as investors are concerned. Consider a scenario where a fund house that has been allowed now to launch two schemes each year, fails to raise its net worth in a stipulated time? It would be forced to merge itself with bigger players and investors may also suffer in the interim.

Sovereign Debt: Bonds issued by a national government in a foreign currency, in order to finance the issuing country's growth. Sovereign debt is generally a riskier investment when it comes from a developing country and a safer investment when it comes from a developed country. The stability of the issuing government is an important factor to consider, when assessing the risk of investing in sovereign debt, and sovereign credit ratings help investors weigh this risk.
(Source: Investopedia)
Quote : "The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phillip Fisher

© 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.

Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667