  | | May 10, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 20,082.62 | 506.7 | 2.59% | | Re/US$ | 54.25 | (0.4) | -0.80% | | Gold Rs/10g | 27,310.00 | 405.0 | 405.0 | | Crude ($/barrel) | 104.48 | 5.1 | 5.08% | | FD Rates (1-Yr) | 7.50% - 9.00% | Weekly change as on May 09, 2013
*BSE Sensex as on May 10, 2013 | |
Impact 
In times of economic difficulties or in need of borrowed funds, we often look at gold as the lender of last resort and try obtaining a loan against it. And probably that’s the reason why gold has been viewed as hedge against economic uncertainties, as it can come to our recourse during testing times. In India, along with lust for gold jewellery most individual these days often buy gold in the form of gold coins and bars, with the expectation that they can be pledged to obtain a loan in times of need.
But let us apprise you that recently the Reserve Bank of India (RBI) proposed that banks should restrict facility of advancing loan against gold coins to a maximum weight of 50 grams (and the guidelines thereto are expected by end-May). Moreover gold loans companies are feeling the heat with gold prices having descended from their earlier highs, in the recent past. For them (gold loan companies), erosion of margins and a high interest cost on loans which they have obtained from banks and Non-Banking Financial Companies (NBFCs), in the backdrop of fall in prices of gold are impacting their business. So gold loan companies could also increase their margins, or at least meet RBI’s mandate on the margin requirement.
PersonalFN is of the view that the aforesaid proposal from the central bank is intended to discourage individuals from buying gold coins as a hedge against economic uncertainties or to finance during times of need via loan facility. The possibility of restriction being imposed on advances against gold coins upto only 50 grams in weight would restrain one from fetching more amount as a loan against gold pledged, taking into account the present value for per gram of gold and the margin requirements as well.
|
Impact
As many of you may be aware, the Indian equity markets (the S&P BSE Sensex) began the year 2013 with a positive spirit, as Government set a tone of reformism during the winter session of the Parliament. But later in the ensuing couple of months i.e. February 2013 and March 2013, as edgy disposition gripped the market with concerns such as what would be enunciated in the Union Budget 2013-14, how the fiscal deficit target would be met, how twin deficit problem would be handled amid slowdown in domestic economic growth and global economic headwinds in play, the Indian equity markets lost -5.3%. While in the month of April too, the mood was pessimistic for the earlier half of the month with tepid growth depicted by industrial production data, the WPI inflation data for March 2013 (released on April 15, 2013) infused hopes of a rate cut from RBI in its annual monetary policy 2013-14. Likewise statements from the Finance Minister, Mr P. Chidambaram saying that Current Account Deficit (CAD) could be halved in 1 or 2 years, inflation would be contained and reform initiatives would be taken in next two-four months in order to boost economic growth; helped to infuse positive sentiments. And indeed with gold and Brent crude oil prices have descended along with appreciation of the Indian rupee, the markets acknowledged the same. It is noteworthy that in in the last 10 trading sessions of the month of April 2013, the Indian equity markets ascended by good +6.9%, thereby recovering from the earlier losses and ending the month of April 2013 with gains of +3.5%.
FII Activity vs. MF Activity
Data from January 01, 2013 to April 30, 2013
(Source: AMFI, PersonalFN Research)
Speaking about activity of Foreign Institutional Investors (FII) and domestic mutual y during these last four months of the calendar year 2013; FIIs bought aggressively until February 2013. But with worries such as the following looming, they became cautious and slowed their pace in March and April 2013while buying into Indian equities.
- Political uncertainty (which has put the country to risk on early election);
- Policy logjam and interrupted session of the Parliament
- Scam stories (viz. coal allocation and 2G spectrum allocation)
- Structural bottlenecks in mining and infrastructure space
- Slowdown in economic growth rate; and
- RBI hinting that headroom for further monetary easing remains quite limited
Also with the U.S. economy showing signs of economic vigour and other Emerging Market Economies (EMEs) being on investment radar of FIIs for host fundamental reasons; they seemed to have allocated assets in such economies, which in turn led to reduction of India's share of foreign flows.
Contrary to the participation of FIIs, domestic mutual funds have continued to be net sellers in the Indian equities, with redemption pressures building in with every up-move of the Indian equity markets in an uncertain economic and political environment. The fund managers also seemed to be worried about the other aforementioned factors.
So would this inverse trend continue even going forward?
Well, at most times such a trend has been evident in the past and could be seen in the future as well. Even now aided by global liquidity and signs of economic vigour shown by the U.S, the Indian equity markets have ascended by +2.5% thus far in May 2013 (i.e. as on May 08, 2013). During this time FIIs have net bought rather aggressively to the Rs 5,683 crore, while domestic mutual funds have net sold to the tune of Rs 1,154 crore.
Going forward, the risk for the Indian equity market emanates from yet a low capex cycle, industrial activity and an uncertain political environment. But in the near-term, Indian equities could continue to tread upwards, since worry over CAD seems to have receded with gold losing its sheen and price of Brent crude oil falling. But how these major import commodities fair in the future has to be seen carefully. Likewise decent Q4FY13 earnings number and expectations of a normal monsoon seem to be guiding Indian equities in their upward path.
Hence PersonalFN is of the view that while FIIs would be wary of the aforementioned domestic macroeconomic and political scenario, they would continue to buy into Indian equities as long as the investment climate is kept conducive. Domestic mutual funds on the other hand would continue to encounter redemption pressures with every up-move of the Indian equity markets.
---------------------- Introducing PersonalFN's Guide to Investing in Gold --------------------- Many of us buy gold with an emotional touch. And why not, the glitter which it presents and the feeling of content it gives are truly worth it.
PersonalFN has Just Released a Guide to Investment in Gold, which reveals the smart way of investing in gold.
Download Your FREE Copy Here!
|
Impact
Today rampant technological innovation has brought a change in the way many of us communicate. After having hand-written letters / memos, typed them on typewriters or computers (in a later era) and sent via the physical mode (either by post or courier service), today we often exchange e-mails. With fast moving technology, we’ve moved forward even further as we have messenger systems or applications (commonly known as apps) on our smartphones – be it the “BlackBerry Messenger (BBM), WhatsApp or any other”; which is helping us to communicate conveniently and quickly to one individual or a group. Somehow the usage of technology has helped us converge with many facets of our life - even investing and wealth creation. You see, we often exchange with one another some investment tips vide the messenger applications on our smart phone – be it related stock market investing or investing in fixed income instruments as well. And thanks to the investing apps as well, which keep us updated on daily capital market activity. But going forward you got to adopt caution while exchanging information related to stock market investing.
The capital market regulator – the Securities and Exchange Board of India (SEBI) is mulling ways to keep a check on the exchange of price sensitive information about stocks, which today often gets shared with the usage of all messenger apps (such as the above) used by many individuals on their smartphones. To read more about this news and to know PersonalFN’s view over it, please click here.
|
Impact
In the endeavour to earn a high disposable income quite a few citizens often conceal information from the tax authorities. But let us apprise you that in the game of 'hide and seek' with the tax authorities, there are likely chances of one getting caught and facing prosecution. In December 2012, the Government had issued stern warning asking people to disclose their true income, or face the risk of an income tax scrutiny. The Finance Ministry had said, concealment of income while filing tax returns would not go unnoticed as various information of your transaction would be collated.
And now moving a step forward, the Finance Ministry is contemplating making it mandatory for individuals and Hindu Undivided Families (HUFs) to report their Indian asset and liabilities in their Income-Tax (I-T) return forms. In order to do so, the Government is considering introduction of new I-T return form, which will make it mandatory for individuals and HUFs to disclose their Indian asset and liabilities, rather than a mere statement of computation of total taxable income, from various sources as classified under the Income Tax Act, 1961. To read more about this news and to know PersonalFN’s view over it, please click here.
|
- On the auspicious Muhurat of “Akshaya Tritiya” next week (on May 13, 2013) many of you may be planning to buy gold. And if you are intending to buy gold coins here’s a chance to avail of some discount.
India Post at present is offering a 7% discount on purchase of gold coins through post offices on the occasion of Akshaya Tritiya. The offer is available on 24 carat gold coins (with 99.99 purity) which will be available in denominations of 0.5 gram, 1 gram, 5 grams, 8 grams, 10 grams, 20 grams and 50 grams.
PersonalFN is of the view that, while India has an insatiable appetite to own the precious yellow metal - mostly in physical form (jewellery, gold coins or gold bars) for both emotional and financial reasons; it is important to recognise the perils of holding gold in a physical form. The passion to hold gold in a physical form has some disadvantages such as holding cost you pay as a locker rent to stack gold in a bank’s safe vault, quality (unless you are buying 99.99 purity gold), premium you pay (in case you are buying jewellery) and sometimes even resale value if you aren’t holding high purity gold. Moreover, you could be under the scanner of tax authorities since your physical gold holdings may attract wealth tax.
PersonalFN recognises that gold is an effective diversifier and hedge against economic uncertainties and therefore one must own it; but it is vital to invest the smart way in gold. Gold Exchange Traded Funds (ETFs) are a smart way of investing in gold, as they offer the following benefits:
- Convenience
- Quality is uncompromised
- No question of paying premium for buying gold, as you do while buying physical gold
- Low cost (since you don’t pay a steep locker rent to your bank as you do for holding physical gold)
- Correct resale value (very much unlike in case of physical gold holding - especially jewellery where making charges are deducted)
But you ought to be careful in selecting gold ETFs and prefer those only which have:
- Low tracking error (i.e. the gold ETFs holds more percentage of its assets in gold, rather holding cash); and
- Low expense ratio.
Also those who want to invest in gold at regular intervals in a systematic manner, can consider gold saving funds (which generally operate like a Fund of Fund (FoF) scheme which invests their corpus into an underlying GETFs), since they offer the SIP mode of investing which provide you with the benefit of rupee-cost averaging and compounding.
|
Manipulation: The act of artificially inflating or deflating the price of a security. In most cases, manipulation is illegal. It is much easier to manipulate the share price of smaller companies, such as penny stocks, because they are not as closely watched by analysts as the medium- and large-sized firms.
Also known as "price manipulation."
Source: Investopedia
|
Quote : "No one's ever achieved financial fitness with a January resolution that's abandoned by February." - Suze Orman
|
| |