  | | April 05, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 18,450.23 | (385.5) | -2.05% | | Re/US$ | 54.89
| (0.5) | -0.96%
| | Gold Rs/10g | 28,985.00
| (555.0) | -1.88%
| | Crude ($/barrel) | 106.48
| (1.5) | -1.42%
| | FD Rates (1-Yr) | 7.50% - 9.00% | Weekly change as on March 26, 2013
*BSE Sensex as on March 28, 2013 | |
Impact 
In the 4th quarter mid-review of monetary policy 2012-13, the Reserve Bank of India (RBI) refrained from cutting the Cash Reserve Ratio (CRR) as they intend to manage the liquidity situation actively through various instruments including Open Market Operations (OMOs), in order to ensure that adequate flow of credit to productive sectors of the economy. But this move from the RBI hasn’t seemed to have gone well with bankers. They are of the view and have pressed to the central bank that CRR be cut by 50 basis points (bps) in order to tide over tight liquidity situation and preclude slide in investments.
It is noteworthy that borrowing by banks under the Liquidity Adjustment Facility (LAF) window is yet over Rs 1,00,000 crore since the 4th quarter mid-review of monetary policy 2012-13, and therefore in this regard bankers have also urged RBI to conduct more OMOs to ease liquidity crunch. Bankers are of the view that deposit growth has also been slightly lower than RBI expectations, which they expect to improve with liquidity becoming easier.
The CRR is the amount of liquid cash which the banks are supposed to maintain with RBI, and by keeping it unchanged at 4.00% has unable to infuse further primary liquidity into the banking system, although RBI intends to cater to the situation as mentioned above.
We are of the view that, with intermediate inflationary pressures evident (due to hike in prices of diesel and freight) the RBI may refrain from reducing CRR and thereby not infuse primary liquidity in the system. However as mentioned in the 4th quarter mid-review it would manage the liquidity situation actively through various instruments including OMOs. It is noteworthy that, over the last year, since January 2012, CRR has been reduced by 200 bps.
As far reducing policy rates to fillip economic growth is concerned, in the guidance from monetary policy (4th quarter mid-review) the RBI has already hinted that headroom for further monetary easing remains quite limited and has now put the onus on the Government to reviving growth.
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Impact
The descending move of the Indian equity markets (i.e. the S&P BSE Sensex) witnessed in the month of February 2013 continued in the month of March 2013 as well. However, unlike the month of February 2013 where the markets corrected by -5.2% or -1,033.44 points, this time, in the month gone by, the markets fell by mere -0.1% or -25.77 points.
S&P BSE Sensex vs. FII flows
Base: Rs 10,000
Data as on March 31, 2013
(Source: ACE MF, PersonalFN Research)
But despite this descending move led by factors such as non-populist Union Budget 2013 (which depicts an attempt to bring back fiscal prudence), slowdown in Q3FY13 GDP growth rate, 'see-saw' movement in Index of Industrial Production (IIP), intermediate inflationary pressures evident (due to hike in prices of diesel and freight), political uncertainty and global economic headwinds (especially from the Euro zone, with risk of Cyrus banking system melting down being a fresh issue); the Foreign Institutional Investors (FIIs) continued to buy into Indian equities. However a noteworthy point is that, unlike the month of February 2013 where they net bought aggressively to the tune of Rs 24,439 crore; in the month of March 2013 they turned cautious and slowed pace in their net buying activity with Rs 9,124 crore of Indian equities being purchased.
So what led them to go cautious while buying into Indian equities?
Well, the main reasons seem to:
Also with other Emerging Market Economies being on investment radar of FIIs for host fundamental reasons, they seemed to have allocated assets in such economies, which in turn has led to reduction of India's share of foreign flows.
We are of the view that, going forward FIIs are going to be wary of the aforementioned domestic macroeconomic and political scenario and would tread cautiously while buying into Indian equities. Concerns of early elections are overshadowing the reform measures taken by the Government and are dragging the markets down.
Hence in such a situation where volatility persists with downward bias for the Indian equity markets in the near term, we recommend investor to stagger their investments to mitigate risk, since volatility could persist. While investing in equity mutual funds, we recommend one to opt for the SIP (Systematic Investment Plan) mode of investing, as it will enable you to mitigate the volatility through rupee-cost averaging and power your portfolio with the benefit of compounding. However, while selecting mutual funds for your portfolio, prefer the diversified equity funds which follow strong investment processes and systems, and invest with a long-term horizon of at least 5 years.
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Impact
Many of us engage in an economic activity to make a living. And with competition around we often work hard and try to give the best within our means to our family in times where inflation monster haunts us. But while we do all it takes to keep our family happy, prudent financial planning can bring in solace in our endeavour to give best to our children and even save for the golden years of retirement. Mind you, many misconceive ad-hoc investing with prudent financial planning and often think they are on the right path to meet life goals. But let's apprise you that investing along with planning is rather a serious activity and often boring, as against the excitement depicted by the market intermediaries (i.e. agent / brokers / distributors / relationship managers), glamorous business channels and friends.
Today, while all of us want to have a cosy retirement life ahead the onus of indeed making it cosy ahead (during the golden years) is on us as investors. There are host of investment avenues available to plan for retirement, but it is imperative that your investment portfolio intended to achieve you goal of retirement, to have the right mix of asset classes and investment options therein. Annuity in the form of pension which takes care of our cash flows during retirement is something very much desire; but it imperative to plan for the same wisely and not get lured to inappropriate products, merely getting carried away by the exuberance created by the market. To know the the prudent way to plan your retirement, please click here.
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Impact
With the political scenario in the country portraying an uncertain picture and threat of an early election apparent due to political backlash and double-standards, the Government in power is ready to shower some goodies vide some DTC (Direct Tax Code) sops in an attempt to woo taxpayers. Many of you may be aware that due to the persistent twin deficit problem (a result of ballooning fiscal deficit and widening Current Account Deficit (CAD)), the Government in the Union Budget 2013 refrained from doling out any populist proposals on the direct tax front, barring a tax relief being provided to taxpayers in first tax bracket and additional interest deduction for new home buyers. Expectations that the Government may increase the present exemption limits for conveyance / transport allowance, medical reimbursement, children education allowance and a separate deduction limit should be set up for tuition fees paid for children's education; were not met and left many disappointed.
But now fearing early election, the Government is ready with the DTC bill and has on menu the following: To read more about this news and to know our view over it, please click here.
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- Many self-employed individuals often face difficulties while they seek a loan to buy their dream home, since numerous documents are required. Recently, Axis Bank launched a dedicated home loan scheme for self-employed individuals.
Under the scheme, self-employed borrowers would pay 1.0% above the base rate to start with, which would result in paying higher than the ones in the salaried class. However the home loan scheme has a clause under which prompt payment will help reduce interest outgo for diligent self-employed home loan borrowers.
"The self-employed category is definitely riskier than the salaried class. However, we have a clause under which prompt payment will reduce the interest outgo and get a self-employed borrower at par with a salaried one in five years," said Mr Jairam Sridharan, Head of consumer lending and payments at Axis Bank.
We are of the view that, interest rate on the aforesaid home loan scheme has been intentionally kept slightly high reckoning that self-employed category is risk for the portfolio of the bank. But if one pays diligently, it provides for a clause which helps in interest outgo.
The aforesaid home loan scheme we think would help in times when home loan segment seeing a dip (due to economic uncertainty), and assessing that over half of the country belongs to this segment, who aspire to buy their dream home.
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Pension Plan: A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
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." - John Templeton
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