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| May 15, 2015 |
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| Weekly Facts | | | Close | Change | %Change | | S&P BSE Sensex* | 27,324.00 | 218.61 | 0.81% | | Re/US $ | 63.65 | 0.59 | 0.92% | | Gold Rs/10g | 27,405.00 | 435.00 | 1.61% | | Crude ($/barrel) | 65.83 | -0.39 | -0.59% | | F.D. Rates (1-Yr) | 7.00% - 8.50% | Weekly changes as on May 14, 2015
*BSE Sensex as on May 15, 2015 |
Impact 
In times when figuring what's going on becomes difficult; it's best to take services of experts. The roller-coaster ride of the Indian equity market has left investors fluttery, nudging them to rely on professional money managers for wealth creation. Retail and even High Networth Individuals (HNIs) seem to be shunning direct equity investment and instead opting to invest in via equity mutual funds of late.
As per the data from the exchanges, retail investors have dumped shares worth Rs 14,869 crore thus far in 2015. On the other hand, equity oriented mutual funds have witnessed net inflows to the tune of Rs 28,505 crore thus far this calendar year.
Well, some of the reasons for this are...
- Investors are learning from their past experiences, especially the aftermath 2008-09 where they lost a lot of money having bought on unsolicited unprofessional advice;
- Lack of competence to handle the volatility associated with direct equity;
- Lack of skills, time and experience required for investing in direct equities; and
- There appears to be change in demography of investors wherein they are relying on professional advice to invest in financial instruments
But given the headwinds in the market, mutual funds too would reel under pressure, albeit at a gentler force since they are well-managed. Having said that, PersonalFN believes it is vital to recognise risk associated with mutual fund investments. While you select funds, adopt a prudent approach to select winning mutual funds...and pick them for your portfolio as per your risk profile along with the asset allocation that suits you the best. There is no point getting swayed by exuberance and invest in equity; because what is food for one can be poison for another.
Do you think investing in equity oriented mutual funds is less risky than investing directly in equity shares? Share your views here.
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Impact
It is said that, "the justice delayed is justice denied." Nevertheless, trials go on for years in India, causing inordinate delays in the delivery of judgement. To improve the justice delivery system, the Government has amended various laws and provided more clarity plugging the loopholes. Also a fact remains that many cases filed in the court have money at stake.
A case as straight as dishonouring of cheque due to insufficient funds, can also remain unresolved for years due to complexities involved it. To correct this, the Lok Sabha has recently passed the Negotiable Instruments (Amendments) Bill, 2015. Key sections such as 138, 141 and 142, of the Negotiable Instrument Act, 1881, are likely to be amended. Moreover, the definition of "cheque" has also been modified.
Why was it needed?
About 259 Indian courts have been hearing almost 21 lakh cheque bounce cases. Moreover, some of recently delivered Supreme Court judgements were found impractical and various stakeholders made representations to the central Government.
In August 2014, the Supreme Court directed that the jurisdiction for dishonour of cheques is restricted to the court within whose local jurisdiction the offence was committed. In simple words, a case can be filed with a court in whose territory the defaulter's bank falls. It was believed that, this would:
- Give defaulters undue protection as filing cases may become difficult on many occasions
- Completely disregard the concept of "pay at par" and Cheque Truncation System (CTS)
And now what would amendments bring in?
When enacted, the amendments would require the filing of cases only by a court within whose local jurisdiction the bank branch of the payee i.e. where the payee presents the cheque for payment is situated. To simply put, the location of the bank of a person depositing the cheque would be the jurisdiction and not that of a bank of the payer that defaults.
PersonalFN believes, that the proposed amendments may achieve their desired objectives of speedy disposal of cases relating to dishonour of cheques. But critics say that, the industry, financial institution and banks will benefit more than the individuals and new amendments would be used to harass the common man. But a case can't be filed without serving a notice to the defaulter and giving him another chance to honour the payment. Considering all this, PersonalFN it is less likely that the amendments may be used for harassment. On the contrary, at the time when Non-Performing Assets (NPAs) of the banks are high, such amendments may make it easy for them to tackle with wilful defaulters.
To watch our exclusive videos on the key features of Jan Bima Yojanas – the insurance schemes – launched by Modi-led-NDA Government, click here.
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Impact
Continuing its downward journey, retail inflation eased in April 2015 as well. Food inflation which constitutes a significant proportion of Consumer Price Index (CPI) measuring the inflation at retail level has been easing of late. Despite unseasonal rains damaging Rabi crop worth nearly Rs 7,000 crore, food prices have been dropping. As a result, retail inflation measured by the movement of CPI has slipped to 4.87% in April from 5.17% in March.
Retail Inflation on Slippery Path...
(Source: MOSPI, PersonalFN Research)
On the other hand, industrial growth measured by the movement of Index of Industrial Production (IIP) slowed down to 2.1% as against 5% recorded in February this year. This has given rise to expectations that, the RBI may reduce policy rates going forward. Whether RBI does so indeed, yet remains to be seen. PersonalFN brings to you thorough analysis of these macroeconomic developments. PersonalFN also provides you some insights into what stance RBI may take at its 2nd bi-monthly monetary policy scheduled on June 02, 2015.
What caused inflation to go down?
Expectations of analysts were belied as food inflation slowed to 5.11% in April from 6.14% in March as vegetable prices cooled in the market on improved supply. Vegetable inflation eased to 6.63% in April from 11.26% in the previous month. Inflation in clothing and footwear eased further to 6.15% versus 6.27% in March, while that in the fuel and lighting segment inched to 5.60%from 5.07% per cent in March. Lower inflation experienced in protein rich foods has also led overall inflation to drop below 5%.
To read more about this news and PersonalFN's views over it, please click here.
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Impact
Over the past one year, major currencies of the world recorded a double digit fall against the U.S. Dollar (USD). Stronger than expected recovery in the U.S. and speculations about the Federal Reserve (Fed) reversing its easy monetary policy stance, made the greenback stronger. In such an environment, the Indian Rupee (INR) too has weakened along with some major currencies vis-à-vis the greenback. The INR has touched a 20-Month low (breaching the 64-mark against the USD on May 07, 2015,) and now concerns have re-emerged.
Depreciation in some major currencies vs. the U.S. Dollar
Data as on May 07, 2015
(Source: Bloomberg.com, PersonalFN Research)
But a noteworthy point is, barring the Swiss France, when compared to the other major currencies, the INR has shown some resilience. This is mainly because foreign investors have been evincing confidence in the Indian capital market by the virtue of being pleased by the efforts taken by Modi-led-NDA Government.
However of late, foreign investors seem wary. In the month of May so far, outflows of Foreign Institutional Investors (FIIs) in Indian equities have been the highest since those recorded in August 2013. Likewise inflows under debt market in India have slipped in negative for the first time this May (on monthly basis) since May last year. Foreign investors seem jittered by the following set of events:
- The Centre's unexpected demand for Minimum Alternate Tax (MAT) on capital gains on a retrospective basis;
- Hindrances in passage of vital Bills in the parliament;
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- Reforms not being implemented as expected;
- Disappointing corporate earnings; and
- Rise in global crude oil prices
So will INR depreciate further more?
As FIIs exit India, the INR is likely to be under pressure. But the situation doesn't appear to be as scary this time as it may perceive to be.
Now that the CPI inflation has mellowed down to 5.17% in March 2015, the Real Effective Exchange Rate (REER) may show resilience. But the gains would be gradual. REER is the inflation adjusted value of the currency factoring in the inflation differentials among trading partners.
To read more about this news and PersonalFN's views over it, please click here.
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- Mutual funds seem to be bullish on automobile industry these days. Financial I.T., FMCG and Pharmaceutical companies have been favourites of fund managers for long. However, latest trend in mutual fund holdings suggests that weightage of auto stocks in mutual fund portfolios has been the second-highest, just below banking and financial stocks. Mutual fund houses have collectively invested Rs 37,029 crore as reported by Business Standard dated May 14, 2015. This suggests that fund managers across the board, are expecting a strong recovery in earnings of auto companies in coming quarters.
Betting on particular sector or avoiding it, involves in detail analysis. Thus, PersonalFN believes, those investors who may not have time to do research on their own or may lack a will to do so, should invest in diversified equity funds. Having said this, PersonalFN discourages investors from investing in sector or thematic funds. They not only expose you to very high risk but may also not generate adequate returns if you can't time your entry and exit. Those who want to benefit from opportunities presented by a few sectors may invest in opportunities oriented funds. While selecting a fund, you may go for those having a track record of consistent performance across timeframes and market phases.
PersonalFN provides unbiased mutual fund research services.
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Real Effective Exchange Rate: "The weighted average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index."
(Source: Investopedia)
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Quote : "A market is the combined behavior of thousands of people responding to information, misinformation, and whim. " - Kenneth Chang
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