  | | October 11, 2013 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 20,528.59 | 612.6 | 3.08% | | Re/US$ | 61.36 | 0.4 | 0.62% | | Gold Rs/10g | 30,215.00 | 670.0 | 2.27% | | Crude ($/barrel) | 108.94 | 0.0 | 0.02% | | FD Rates (1-Yr) | 8.25% - 9.00% | Weekly change as on October 10, 2013
*BSE Sensex as on October 11, 2013 | |
Impact 
We often hear news of market slides nowadays. Due to turbulent global economic conditions; equity markets have been depicting see-sawing movements. Investors are always on tenterhooks. Many of them panic when markets start falling but Indian mutual funds seem to be prudent investors. Let's find out why...
Despite of heavy redemption pressure, Indian mutual funds have not bought or sold equities following market momentum. In September, Indian mutual funds saw redemptions worth Rs 2,116 crore which were at four-month high. Mutual funds dumped stocks worth approximately Rs 2,800 crore. This suggests that besides honoring redemption requests mutual funds were keen on booking their profits.
Dumping Stocks...
Returns calculated on S&P BSE Sensex are monthly average returns
(Source: SEBI, PersonalFN Research)
As depicted in the graph above, in January mutual funds sold off stocks worth nearly Rs 5,200 crore. During the same month mutual funds had received redemption requests worth Rs 2,500 crore. Moreover, they were the net buyers in August when markets recorded their highest monthly average loss so far in 2013. It appears that mutual funds are selling on rallies and buying back when markets are down.
PersonalFN is of the view that, investment pattern of mutual funds suggests that although there is a little confidence among fund managers as well as among investors about the durability of rallies; dips are getting bought. Unlike other institutional investors there is no panic selling by mutual funds so far. Uncertain markets and poor economic indicators are affecting the decision making of fund managers.
PersonalFN believes that you shouldn't try to time the market and instead of bothering about entry and exit levels; you should focus on your financial goals. Once goals are identified and the amount you may need to satisfy those goals is ascertained; you need to follow right asset allocation. When you are unsure about how much exposure you need to have to various assets classes you may take professional help. Mutual funds are managed by professionals and thus they are an essential tool in your financial planning; but selection matters.
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Impact 
India's insatiable appetite to own gold, nudged the Government to increase the import duty on gold twice this year. Likewise, sometime in the beginning of this calendar year, Reserve Bank of India's (RBI) working group also recommended setting up of gold banks and introduction of gold-backed financial products with an intention of monetisation of gold, that could help reduce gold imports. The panel also suggested recycling of domestic scrap gold and putting idle gold reserves of gold exchange traded funds (ETFs) to productive use.
Moving on those lines, now it is the jewellers who are thinking creatively. They are asking consumers to recycle old gold in their possession by offering new gold schemes. For instance, Tribhovandas Bhimji Zaveri (TBZ) is offering a gold deposit scheme which enables consumers to deposit gold coins, bars or jewellery with the company; and after a year the consumers will get 5 gram of the yellow metal extra for every 100 gram deposited. Moreover, if the gold deposited was first bought from TBZ, then the company will give 10 grams of gold for every 100 gram deposited.
Similarly, the All India Gems & Jewellery Trade Federation (AIGJF) is mulling a new scheme called Rashtriya Swarna Nivesh Programme, which could according to its former Chairman, Mr Ashok Minawala be an efficient way to channelize old gold.
PersonalFN is of the view that, launch of such a scheme would lend a helping hand in Government's endeavour to reduce gold imports (which puts pressure on India's trade deficit), may increase gold stock and facilitate investors to garner more units of gold. But PersonalFN believes that there ought to strict regulation on such schemes, as that would encourage consumers to part with their existing gold holdings. Also effective regulation would help channelize gold efficiently.
PersonalFN is of the view that unless strict regulations are in place, investors and consumers of the precious yellow metal should not deposit their old gold. Resist the lure and keep away from such gold schemes in your pursuit to earn more units of gold.
Fortunately, India's gold imports in September 2013 has come down sharply (by 80%) to U.S. $0.8 billion from U.S. $4.6 billion in September 2012; which in turn has helped place the trade deficit data for September 2013 to a 30-month low at U.S. $6.76 billion. Thus the trade deficit data for July to September 2013 quarter has also narrowed to U.S. $28.7 billion (from U.S. $50 billion in the first quarter). This in turn is also expected to stabilise the India rupee, which experienced rampant volatility in the last few months.
Notwithstanding the above, the on-going festive and ensuing marriage season would keep the demand for gold buoyant. In fact according to the World Gold Council (WGC) India's gold demand would rise by 15% in October to December 2013 quarter on account of good monsoon and 20% more auspicious days this festival season.
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Impact
In a surprise move, RBI lowered borrowing rate on Marginal Standing Facility (MSF) by another 0.50% on Monday. The rate was reduced by 0.75% for the first time at the second quarter mid review of monetary policy. After these reductions now the MSF rate stands at 9.0%. Equity and debt markets have reacted positively to this development as tide seems to be turning now. Few weeks ago, the MSF rate was hiked by 200bps or 2.0%. In a drive to stabilise rupee and curb speculation arising due to excess liquidity in the system; RBI had hiked short term borrowing rates. But this had put enormous burden on banks to meet their short term liquidity needs.
What led RBI to reduce rates now?
Rupee has bounced back nearly 11% from the lows it recorded towards the end of August. RBI may be of the view that now rupee would stabilise since Federal Reserves in the U.S. is likely to delay the tapering of Quantitative Easing (QE). In the past, speculation about winding down of QE3 had caused dollars to flow out from emerging markets. Indian rupee took a hit due to heavy dollar outflows. Although the Current Account Deficit (CAD) has widened to 4.9% in the first quarter of Financial Year (FY) 2013-14; it is significantly lower than record high of 6.5% witnessed during October-December quarter last fiscal. In sync with steps taken by the government, RBI initiated some measure to attract flow of foreign capital to India which may help India improve its Balance of Payment (BoP) position in future
To read more about this news and the view of PersonalFN over it, please click here.
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Impact
Prevailing volatility in capital markets has been affecting investors' sentiment to a great extent. Equity markets have been range-bound almost for last 3 years now due to which retail participation in equity oriented funds has been very low. This fiscal too, sentiments have not improved much. There have been a number of occasions when equity markets have witnessed wide fluctuations in daily returns during the quarter gone by. Over July-September quarter, daily returns in equity markets have varied frequently in the range of 3%-4% on both positive as well as on the negative side. One of India's most tracked equity indices, S&P BSE Sensex moved in the range of 15% in July-September quarter. The index touched upper limit of the range it has formed over last 3 years and traded near its all-time high. But as witnessed even in the past, investors preferred to redeem their investments in equity oriented funds.
Many first-time investors who had invested in markets in late 2007 and at the beginning of 2008; would have made no real profits till now despite of staying put for nearly 5 years. This has made many investors skeptical about effectiveness of equity as an asset class. Such investors have been pulling their monies out as soon as they break-even.
To read more about this news and the view of PersonalFN over it, please click here.
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- After the RBI reduced Marginal Standing Facility (MSF) twice in the in the recent past (by 75 basis points on September 20, 2013 and 50 basis points on October 7, 2013), some mutual fund houses such as IDBI Mutual, L&T Mutual, Morgan Stanley Mutual Fund, JPMorgan Mutual Fund and Principal Mutual Fund have pushed the minimum investment period for charging exit loads in short-term debt schemes. The debt mutual fund schemes who have undergone this change for exit loads are:
It is noteworthy that earlier when the MSF was hiked (by 200 basis points in mid-July 2013); yields at the shorter end of the yield curve spiked and had attracted investors. And now that short-term rates have reduced by RBI, profits are witnessed by investors due to inverse relationship between yields and bond prices.
PersonalFN is of the view that, mutual fund houses by increasing exit loads in short-term debt mutual fund schemes are trying to discourage redemptions in this category in the short-term and ensure interest of existing investors in these schemes are protected. But PersonalFN thinks that in most cases the minimum investment period for charging such a load has been increased by more than double; which is inappropriate recognising the liquidity requirement, and that is penalising investors.
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Sideways market: "A sideways market occurs where the price trend of a certain trading instrument, such as a stock, has been experiencing neither an uptrend nor a downtrend. Instead, the price activity has been oscillating between a relatively narrow range without forming any distinct trends. A sideways market is said to be trading in a horizontal range or channel, with neither the bears nor the bulls taking control of prices."
(Source: Investopedia)
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Quote : "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful" - Warren Buffett
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