February 13, 2015 | |||||||||||||||||||||||||||||
In this issue
Weekly change as on on February 12, 2015 | |||||||||||||||||||||||||||||
Impact Banking sector is considered as a proxy play on economic development of a country. Since there is a widely perceived notion that Indian economy may do well in future; investors have been betting aggressively on banking sector. Mutual funds are no exception to this. Their exposure to banking stocks touched all-time high in January 2015. As reported by the Economic Times dated February 11, 2015, mutual funds held investments worth Rs 76,000 crore in banking sector by the end of January 2015. This has been a surge of over 100% since January 2014. Allocation of many diversified equity funds to banking shares has been in excess of 20% of their total assets. You might be wondering as to why mutual funds are committing money to this extent to a sector which has been struggling on many fronts. PersonalFN tells you why you may not have to bother much. Developments in banking sector Until a few quarters ago, it was believed that, as the economy would recover, problem of Non-Performing Assets (NPAs) may become less serious. But latest quarterly results suggest that the worst may not be over just yet. Banks are finding it difficult even to recover restructured loans and many of the restructured loans have started turning bad. In order to give a fair chance to borrowers, banks sometimes allow restructuring of loans. However, what is terrifying is despite of renegotiated terms, restructuring of loans is not working for banks. As far as recovery of economy is concerned, picture remains obscure. Priority and infra sectors are the biggest sources of stressed assets. Developments such as cancellation of licences of captive coal mines and non-availability of gas and coal for power plants pose an even bigger threat to already stressed banking sector as borrowers are feeling the heat. Are mutual funds over bullish on banking sector? PersonalFN is of the view that, mutual funds that go by the merit of a company rather than just looking at the opportunities present in a sector as a whole, have a better chance of generating higher risk adjusted returns in the long run. PersonalFN suggests you to take a closer look at the performance of your mutual funds. Staying invested in funds having proven track record of consistent performance may pay off in the long run. You may take advantage of mutual fund research services provided by PersonalFN. Unbiased nature of reports and thorough analysis of funds help you choose potential winners for your portfolio. EQTM Club Question: Do you think mutual funds are exposing you to higher risk? Share your view here | |||||||||||||||||||||||||||||
Impact The Cricket World Cup is around the corner. There is a craze among Indians to follow cricket. Who doesn’t love watching close encounters? But when a team losses despite being in a comfortable position, it hurts its followers more. You may have watched many matches in which teams lost not because opponents played exceedingly well but because they themselves remained complacent and played badly. Like in cricket, dynamics may change fast in an economy as well. You might be proud of some achievement but sooner rather than later you would realise that you exaggerated achievements. RBI has been raising alters against being overconfident about forex reserves. At USD 330 billion India currently holds highest ever forex reserves and appears well placed for tackling global uncertainties. However, RBI cautioned that, in case of extreme volatility in currency markets, such a high level of foreign exchange may not be adequate enough. Having said this, RBI deputy Governor Mr H.R. Khan expressed confidence saying, “if another round of Quantitative Easing unwinding happens, we would be the last possibly to be affected”. He, however, continued cautioning against any laxity and complacency. RBI has time and again expressed its concerns over unhedged positions of Indian companies opting for foreign currency loans. This can result in catastrophic loss to companies and even pose a threat to the entire system if corporates don’t give a timely attention to this issue. PersonalFN believes RBI has been taking proactive steps in protecting Indian Rupee from possible dangers by recognising them at early stages. Falling crude oil prices have aided India in saving valuable foreign exchange reserves. PersonalFN is of the view that, data points such as Current Account Deficits (CAD), Balance of Payments (BoP) would affect value of rupee to a great extent. It also remains to be seen how INR performs in case Federal Reserve (Fed) in the U.S. goes for interest rate hikes in deed. Rupee movement would not only affect position of foreign exchange reserves but would also affect inflow of foreign capital in Indian capital markets. PersonalFN is of the view that, although it is important to track macro-economic indicators, it is a bad idea to base your investment decision on them. Identifying your financial goals and following personalised asset allocation would help you in the long run. | |||||||||||||||||||||||||||||
Impact Magicians can pull off roses from an empty flowerpot or they can fill the flowerpot with water without even touching a jar containing water. Most of you would know that magicians are illusionists in reality. Although you know this, you would still enjoy watching magic tricks as they are a great source of entertainment. But when actual numbers create an illusion; it is harmful. These days Central Statistics Office (CSO) is leaving all magicians behind. It is driving the growth engine of Indian economy only with numbers. Don’t you trust this? Just have a look at these facts.
Beating all estimates, India’s GDP showed a growth at 7.5% in the 3rd quarter of the Financial Year (FY) 2014-15.
(Source CSO, PersonalFN Research) Robust performance of financial, real estate and professional services along with strong performance of public administration, defence and other services contributed significantly in the growth of GDP during October-December quarter of the current fiscal. To read more about this news and PersonalFN’s views on it, please click here. | |||||||||||||||||||||||||||||
Impact On the back of exit poll predictions that favour Aam Aadmi Party (AAP) at Delhi editions, markets have been nervous with a negative bias. It is unusual to see a fall in key market indices in pre-budget times, especially when macro-economic factors are supportive. Unlike last few budgets which were presented amidst tough economic conditions, the upcoming first full-budget of the NDA Government would be presented on a much confortable backdrop. High inflation along with high fiscal and current account deficits had overshadowed last few budgets. However, for now twin deficits do not seem to be as worrying as they appeared in the past. Inflation has also come down considerably giving some relief to market participants. Globally, crude oil prices have come down nearly 50% over last 1 year providing windfall gains to countries like India that depend heavily on imports. This further gives comfort to the Government while drafting economic policies. Having said this, many fear that the twist of election results in Delhi may change the tone of the Budget. It is also believed that, defeat of BJP in Delhi may force the Government to take some populist measures keeping in mind Bihar assembly elections to be held later this year. PersonalFN is of the view that, the upcoming budget will be the litmus test for the Modi-led-NDA Government. So far, the markets have been resilient despite of expensive valuations and ordinary performance of corporate Inc. However, markets may lose substantial ground if the budget fails to meet expectations of investors. To know more about this story and to read our views, please click here Claim Your copy of The Tax Planning Guide 2015 Edition - Its Free! We are already in the final quarter of the current financial year... So have you planned your taxes this year? If Not! You should do it right away. Download your free copy of The Tax Planning Guide 2015 Now! | |||||||||||||||||||||||||||||
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Gross Value Added (GVA): A productivity metric that measures the difference between output and intermediate consumption. Gross value added provides a dollar value for the amount of goods and services that have been produced, less the cost of all inputs and raw materials that are directly attributable to that production. (Source: Investopedia) | |||||||||||||||||||||||||||||
Quote : "If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has." - John Maynard Keynes | |||||||||||||||||||||||||||||
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