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| December 04, 2015 |
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Impact 
If you want to assess the progress of a student at school, you may look at the child’s report card. In case you are unsure about how a company has done over last one year, you may check out its profit and loss account. Similarly, if you want to see how far you have gotten in your career, do check the weight of your wallet and hope it has increased. Yet these indicators alone don’t decide the success of anyone.
Frankly, your career graph is not drawn only by the money you earned but it is plotted on the foundation of wisdom you gathered on job. This is so true even in case of stock markets. The Index movement is not a precise indicator of how markets have done over a given period of time. The market up-move certainly speaks about the buoyancy that prevails, but what it doesn’t reveal is the quality of performance; thus, it provides no help in forecasting future movement.
Consider this…
Which one of these two situations is desirable?
Scenario 1: You earned your whole year’s income in just 1 month and went workless for rest of 11 months.
Scenario 2: You earned only a few bucks more every month but got the work throughout the year.
You may have to consider the plight of Greece to realise the true worth of having a full-time job, in case you found the first option better of two.
Coming back to markets, sometimes they generate massive returns over a few months and then do nothing for long period of time thereafter. From last November to this November, the S&P BSE Sensex, a bellwether index of the Indian markets, declined to 6% approximately. As you may expect, markets were majorly driven by the investment flows by Foreign Institutional Investors (FIIs) over the last year.
Intrusion of pessimism in Indian markets
 | | Data as on November 30, 2015
(Source: ACE MF, PersonalFN Research) |
The chart displayed above shows you how quickly the sentiment can take a ‘U-turn’ in the market. Until April 2015, both FIIs and mutual funds were bullish on the prospects of Indian equities, but thereafter, FIIs slowly (and silently) started exiting. Mutual funds have remained net buyers every month over this past one year.
Why FIIs bearish when mutual funds are bullish?
FIIs have been investing aggressively since mid-2013; soon after Mr. Narendra Modi was declared as the PM candidate. Markets jumped substantially. There were a lot of hopes pinned on the NDA Government. His (Mr. Modi’s) ‘Gujarat Model’ was expected to be replicated elsewhere in India. NDA’s manifesto kindled hope in the minds of crores of Indians; how could have FIIs resisted? While the masses celebrated NDA’s triumph on streets; FIIs danced to his tunes on Dalal Street.
Why FIIs are restless and fearful? - The Government might have been working hard on several fronts, but unless it becomes successful in introducing structural changes; FIIs may not find solace in Indian equities.
- Corporations in India are unable to capitalise on the lower input costs. Their revenues and profits have been growing anemically, reflecting the serious problem of the softer demand.
- Anticipation of Fed liftoff has affected the sentiment of global portfolio managers and factoring in the possibility of rate hikes in the U.S.; FIIs have started exiting India.
- Towards the end of every year; FIIs have to produce a report card before their investors; they might be booking profits to do some final touchups to their performance record.
Among other things, FIIs seem to have taken the Beef Ban of the Maharashtra Government very seriously. After pouncing on the bullish market, FIIs are sparing some leftovers for others. And it may be too late for players such as mutual funds. Now all that’s left is the skeletal fragments; Dalal street is definitely missing the ‘bull’.
Those who are eternal optimists here’s the reality check
Floods in Chennai are taking 20 days to make headlines; news of Intolerance is selling fast.
Developmental Programmes are being launched in style; implementation leaves much to hope for.
Few names are eliminated from the Government schemes and some new are being added to.
When businesses require boosting; Government goes boasting.
Foreign visits continue; foreign money is awaited.
‘E-governance’ is a distant dream; ‘D-governance’ is a harsh reality.
Political mandates are getting stronger; corporate balance sheets remain fractured
Market valuations continue to stay high; the business sentiments are plateauing
FIIs are shying away from bulls; Mutual funds are crying wolf.
In the past, mutual funds blamed the market conditions for their losing business. The reality is the factory of New Fund Offers (NFOs) that runs endlessly; dumping its production in the portfolios of naïve and gullible investors. More often this coincides with the exit of FIIs. As an investor, keep your eyes open to the reality of the times and ignore the story-telling. Who knows, by the time NFO stories reach to you; they might have already become a thing of the past.
By the way, mutual funds invested in excess of Rs 74, 600 crore in Indian equities over last 1 year while FII investments aggregated at a little over Rs 35,400 crore during same time period. Interestingly, in last three out of four months; FIIs have remained net sellers on monthly basis. These are alarming signs for Indian markets.
Surely, 2016 is going to be another crucial year for Indian markets. We can only hope that mutual fund houses learn from their past mistakes.
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Impact
If you ask a poor man when he ate a full meal last; he will tell you precisely when and what it was. Now ask a rich what he had in the lunch, he is likely to have forgotten the menu by the sunset. This contrast prevails everywhere in India. India has dire poverty and countless riches too.
Although all Indian Governments have repeatedly failed to fix a poverty line with a proper justification, it is safe to assume that India has close to 30% of its population leaving below poverty line.
Now ask a temple in south how much gold it holds; they will have to call up their accounts department several times, speak to their auditors in private before making an official statement. You’d be mistaken if you pegged the reference on Tirpupati Temple, which holds about 1% of total gold stocks in India. The one in the discussion is even more opulent. Sree Padmanabhaswamy temple in Kerala has nearly Rs 1 lakh crore worth gold in its treasuries.
No matter how many times India has gone to international agencies requesting grants and loans; Indian temples are rich enough to pay off all the outstanding foreign loans. Indians collectively hold gold worth Rs 52 lakh crore against which the external loan (as on March 31, 2015) of Rs 31.4 lakh crore looks more pocket-sized.
As you are aware, the Government recently launched the Gold Monetisation Scheme (GMS) to collect idle gold from Indians with an aim of recycling it. This move is expected to help India reduce its dependence on gold imports, thereby saving valuable foreign exchange.
Ironically, out of 20,000 tonnes of gold estimated to be lying idle with Indians, the Government collected only 400 grams through GMS in November. Now the Government is in the process modifying the scheme to make it more attractive. This exercise includes considering allowing exemptions from long term and short term capital gains tax. Moreover, the Government feels, it may be able to revive the scheme if it changes the process of reaching out to people and collecting deposits from them. Soon, the reworked version would be on the table.
We wonder why so many poor children don’t have adequate nutrition and education facilities; what holds these temples back from allowing the Government to collect the idle gold under GMS? This might be looked upon as a way to do a national service. Mind you, the Government is not asking for gold free of cost. It’s based on a proposal, which is fair. And this isn’t just about temples. It’s about every institution of any religion that safe-keeps wealth in the name of the Almighty.
In India, businessmen have no money to pay salaries to the employees of their bankrupt airline company, but they have money to buy three kilograms of gold as a donation to a temple on their birthdays.
Wake up, you have to take care of yourself and that, too, when you are young and working. Save enough for your silver years. Think about providing quality education to your children and more importantly teach them understand true meaning of religious services. Let’s recognize that amassing countless wealth and hatching it in vaults isn’t really a part of religious service. On the contrary, freeing it up for the betterment of the needy certainly is. And while you are at it, teach your child one more thing how to be prudent with money from her childhood.
PersonalFN cares for investors and how managing personal finances aligned with market realities can enable them to achieve financial goals, freedom. We not only write about such matters, but provide services to help you manage your finances better
Do you think the poor response of temples to the GMS is justified? Or you think they should look at the bigger picture and co-operate with the Government? Share your views here
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Impact
Here comes the winter chills, bringing along plans of a vacation, perhaps a trip abroad. Frequent flyers are aware that the rate at which you buy U.S. dollars from money exchangers is often higher than what’s offered to you when selling them. It is rare to find a person who is okay with such a blatant discrepancy. The part we usually overlook is that money exchangers work for a business fundamental called “profit”. It’s possible some might be comfortable with this practice provided the difference isn’t offensively high.
The same holds true for banks. Bank deposits for the tenure of 1-3 years are offering you far lower rates these days than what they were offering a year back. However, there isn’t much difference in the lending rates of banks over last one year. And the writing on the wall spells, the RBI is not happy about it. At the Fifth Bi-monthly Monetary Policy review, the RBI reminded banks about passing on the benefits of past rate cuts to borrowers. Going one step ahead, the Central Bank also announced its intent to create a protocol/structure for determining the base rate—a rate that affects cost of your loans and the profits of the banks.
To know more about this and PersonalFN’s views over it, please click here.
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Impact
With e-commerce companies mushrooming nineteen to the dozen in recent times, striving for a piece of the market share, trying to win their customers’ confidence, they eventually aim to change the consumer’s buying habits. To be able to do that, e-commerce companies are leaving no stone unturned.
Though genuine products, good after-sales services, and overall customer satisfaction still remain the essence of any trade, a number of things have changed. For example, the myriad ways companies reach out to their potential customers, the advertising mediums employed, and most importantly, the product pitch. E-tailers offer you the same stuff for a price less than that offered by brick- and-mortar stores. Most of the times, there is a special discount for first time buyers. With services right from food joints to jewellery designers, they come up with ways to connect to their customers online and increase their online sales, as it helps reduce overheads. Do you know who’s falling behind the curve? Mutual funds.
If you refuse to change, the changing times will make you outdated. Mutual funds are still heavily dependent on a decade-old formula for increasing sales numbers. The aggressive push for NFOs and thrust on commission-driven sales has cost mutual funds a pretty penny. Realising the adverse effects of this on the growth of industry, Securities and Exchange Board of India (SEBI) has turned out suggestive measures for improving the health of the industry.
To read more about this and our views, please click here.
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Public Provident Fund (PPF) and Post Office deposits have been offering you attractive rates even when RBI wants interest rates to move down. The RBI has adopted an accommodative stance on policy and has been on a mission of balancing between growth and inflation. While it was expected that the RBI policy actions will boost economic growth; hardly anything has changed at the ground-zero level. This is primarily because of bad monetary policy transmission. It is often said that, the small savings deposits schemes such as PPF often block the way for policy transmission, as the common man invests in these schemes rather than accepting the lower rates on bank deposits, especially when interest rates are slashed. As a result, banks don’t lower rates for borrowers, making the monetary policy ineffective.
The Government has been thinking about facilitating the policy transmission for a long time; now, you may expect the announcement to come in anytime. PersonalFN advocates considering these factors while you review your financial plan on regular basis.
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Velocity of Money: The rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money
(Source: Investopedia)
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Quote : “Confronted with a challenge to distill the secret of sound investment into three words, we venture the
motto, Margin of Safety.”
-Benjamin Graham
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