Financial Assets @ November 2015

MARKET UPDATE

• Economic growth: Declining commodity prices, especially crude oil, bodes well for India and will further help reduce the Current

Account Deficit. We also believe that declining domestic inflation, deflationary pressures globally and positive policy actions by the government will support further rate cuts by the RBI.

• Earnings growth: We believe earnings growth will average closer to 17-18% p.a. for FY 2016 and FY2017. India’s ROEs seem to

have bottomed out and we see a recovery from here on.

• Markets will benefit: Pick up in corporate earnings growth, fall in interest rates and expanding return on equity (ROE) for

corporate India should be the key drivers in the medium to long term.

Fixed Income Market Outlook

• RBI policy: We believe that the RBI’s larger-than-expected rate cut is aimed at jump-starting economic activities ahead of commencement of busy-season credit period. Based on that, we expect the RBI to maintain a status quo on the Repo Rate till

March 31, 2016.

• Government bond yields: We are constructive on government bond yields over the medium-term and expect the yield curve to

gradually steepen. We expect systemic liquidity to remain benign in the near-term.

Equity Market Outlook

Eqy Markets

• S&P BSE SENSEX had a positive month (up 1.9% in INR terms and 2.7% in USD terms)

• Mid caps underperformed large caps by 0.3% but small caps outperformed large caps by 0.8% (both in INR terms)

Inflation

• September CPI increased to 4.4% vs 3.7% in August, in line with expectations; core CPI remained soft at around 4%

• This increase can be attributed to uptick in prices of vegetables and pulses, and waning base effect

• US Federal Reserve kept rates unchanged citing weakness in exports and soft inflation

• People’s Bank of China cut 1 year lending rates to a record low of 4.35%, while ECB announced that it

was ready to expand stimulus and cut rates

Global Macro

• August IIP numbers saw an encouraging pick-up at 6.4% vs 4.1% in July, hitting a multi-year high

• Manufacturing, electricity, mining, capital goods and consumer durables sectors all displayed improvement in growth

Economic Growth

• Fiscal deficit reached 68% of the annual target, lower than 82.6% achieved in same period last year

• Falling oil subsidy costs and curbs on spending helped rein in the deficit, even as revenues from asset sales fell short of expectations

Fiscal Deficit

Submission:

BSE Sensex looks like consolidating at current levels with 10% - 15% plus, minus. This consolidation phase is expected to be seen in market till March 2016. Good time to participate  in the market in installments. Debt Market with further interest rates cut has been investment heaven. 

Financial Assets @ September 2015

Indian Macro Outlook

1.       Gross Value Growth suggest pick up in activities

i)        GVA growth by industry, is more robust indicator of activity which rose to 7.1% YOY (First quarter 2015-16 visa vis 6.1% in same period last year.

ii)       GDP by expenditure (at market price) came in below at 7% in comparison to 7.5% same period last year.

2.       High frequency indicators also point to recovery.

3.       Balance of Payments – Remains in Surplus with current & capital account being in check

4.       Fiscal deficit rose a bit, but remains in control.

5.       Weak external demand weighing on export growth.

6.       Inflation has surprised on downside, commodities downtrend to help.

7.       Interest Rates expected to moderate further, bringing down cost of capital

8.       Capex cycle shows some sign of recovery

9.       Indian rupee has shown some resilience, compared to other EM currencies.

10.   Financial Inclusions, gets boost in India through recent initiatives.

11.   Indian Corporate Earning was flat FY15 but is expected to pick up going forward.

(Profitability & Margin also expected to better going forward).

12.   Indian markets have corrected recently but have outperformed any market in last one year.

13.   Foreign Portfolio flows have turned negative in recent months.

14.   Domestic Equity has picked up very strongly.

15.   Indian Market valuation has dropped below long term average post corrections.

16.   Valuation gaps between large Caps & Medium Caps have closed mostly.

Recent International Activities:

·         Federal Govt. (US) holds on interest rates

·         Decline in world demand for crude

Food for thought:

Corrections are always considered to be healthy in any market as it gives time to business to adapt to its true pace (real time valuation) …as market always trades on future valuations….

Regards

Financial Assets @ July 2015

BEATING INFLATION

How much money did we make when we started to earn and how much do we make today? But the lifestyles we aim to maintain currently still remain elusive. For example, we all want to buy a house of our own but most of us still struggle to afford one even with our increased incomes. Come to think about it, while our incomes continued to grow, so did the prices of the goods and services we consumed. This phenomenon of rise in prices is called 'Inflation'. Technically speaking it is a sustained increase in prices of goods and services.

This occurs simply because the demand for things we consume goes up in relation to their supply. Take example of a commodity like petrol. We all know that the prices of petrol have been consistently rising over the years because we have started consuming it more compared to the past. But relative to its demand its production has not gone up. Similarly, the prices of major items like food and other services have gone up. Inflation is generally indicated by a measure called Consumer Price Index (CPI) which comprises prices of various commodities and services commonly consumed. The chart below shows the rise in values of CPI over the years.
So how is inflation related to investing?

Inflation eats into the overall returns generated by our investments leading to lower net returns for us. For example, if our investment over the past year has generated a return of 10% and the inflation was 8% then we would be only left with a net return of 2%. These net returns are called as 'Real Returns'.

Now consider this, if in the year 2012 you invested in fixed deposit thinking that you made a return of 9%. Now, the inflation in that year was 11.17% …so in fact real or net return that you made that year was (-2%). This means that your investment actually made a loss! Thus the impact of inflation depends upon the type of asset classes you invest in.

How should we invest to beat Inflation?

While investing, our aim should be to maximize these real returns in order to grow our wealth. This can be achieved simply by investing in asset classes that have produced excess returns over inflation. For example, equities have generated much higher returns over inflation compared to say fixed deposits.

The table below shows comparative real returns given by these asset classes.

Asset class	5 year compounded return (%)	Average CPI increase over 5 year (%)	Real Return (%)
CNX Nifty	9.50	8.42	1.08
Average Bank FD rates 5 years back	8.25	8.42	-0.17

As on 30th June 2015. Source : onemint.com and inflation.eu

As is evident from the table, equities have generated much higher returns beating inflation. However do keep in mind your risk profile in mind while taking exposure to these asset classes.

Mutual Funds offer a range of schemes with varying options to take exposure to assets which have the potential to generate real returns that can suit your risk profiles. There are schemes like:

• Monthly Income Plans (MIPs): Generally offer equity exposure up to 20%.
• Balanced Funds: Offering a higher equity exposure ranging from 50% to 70%
• Pure Equity funds: Offering highest equity exposure.
• Gold ETF: Offer exposure to gold

So be a prudent investor and invest wisely to beat inflation. This will help us to maintain as well as enhance our lifestyles.

Happy investing!! …source Kotak Mutual Fund

Financial Assets @ June 2015

Market Update

Take initiative & participate........

The Economy is painting a mixed picture at this point in time. On one hand where, investments/Credit off-take/Industrial Growth & Capacity Utilization still remains low….The growth is GDP numbers for first quarter of new calendar year provides immediate relief.

Over past few quarters markets posted good returns on the hopes that earnings will revive. However in line with our expectations corporate earnings have not really picked up owing to poor demand in the economy and lack of new investments by the corporate. Recently announced earnings for the fourth quarter of 2014-15 have been muted & are expected to be so at least for the next 2 quarters.

Subdued corporate earnings conjointly with volatility in crude oil prices and international development, especially Federal Reserve’s decision to hike interest rates, can result in further volatility inequity markets in the near term.

In the short term, monsoon shall be an important trigger as RBI too has suggested a conservative strategy to wait till there is more clarity with respect to monsoon.

Our take:

It’s a very good opportunity to capitalize this corrections. The under current is strong & such phase occurs in bull-run sighting various negative news…recall-2005.

Debt market is more or less stable avoid chancing your skills with Corporate Bond funds be reasonable & realistic to attain 9 percent tax free with holding period of three year plus…

Regards

Financial Asset @ May 2015

Greetings....

We firmly believe next six months will be the period when market will consolidate. The ongoing corrections do not change our long term positive views.

Lower crude prices, falling Interest rates & proactive govt. policies will provide enough impetus for growth in long term. One should capitalize these opportunities by incrementally investing for long term.

However, volatility will continue in near term till,

·         earnings growth is muted

·         credit growth is low & capex cycle does not revive

·         lower rates are not transmitted onwards by bank.

In line with same & also from market capitalization point of view, we continue recommending large cap fund which are more attractive than mid-cap ones. Mid-caps are recommended post 5 years of time horizon….

IT sector looks quite attractive since the kind of beating it has taken in last few trading weeks. With appreciation of INR against euro seems to have ended & growth prospect being intact tactical advantage could easily ascertain in this segment from long term perspective.

Debt market would be further streamlining with the stabilization of exchange rates & no sooner than later banks will start passing on the benefits to the borrowers. This in itself will be sufficient reason for the returns to be in healthy territory.

Thanks & Regards

Kajal Gupta

I2isolutions.org

9830293134

Financial Asset @ April 2015

Equity Update – March 2015

After going up sharply in the previous two months (S&P BSE SENSEX up by 6.8%), the equity markets corrected during March. The SENSEX and Nifty were down 4.8% and 4.6% respectively. The CNX Midcap Index fell 0.9%. Barring Healthcare sector which performed well (up 9%), all other sectors corrected during the month, with Metal sector being the worst performer (down 10.5%).

INR depreciated 1% in March. FII’s bought ~US$ 1.9bn of Indian equities in March. Domestic Mutual funds continue to see healthy inflows, equity mutual funds net inflows between April 2014 and February 2015 have been around Rs. 61,000 crs.

Performance of global equity markets was mixed during the month. The Dow Jones and the NASDAQ were down 2% and 1.3% respectively. In Europe, while the FTSE was down 2.5%, CAC and DAX were up 1.7% and 5% respectively. In Asia, Nikkei, Kospi & Hang Seng were up 0.3-2.8%, and Taiex was down ~0.4%. The Shanghai Composite was the best performer up ~13.2%.

Commodities continued to move lower during the month. Brent Crude was down sharply by ~13% after gaining ~15% in February. Gold was down 2.4% during the month. Copper, Lead & Zinc were up 0.8-5.3% while Aluminum was down 1.7%.

Improving growth prospects of the economy, especially of the capex cycle, improving margin outlook of corporates, likely lower interest rates and reasonable valuations lead to a positive outlook for equity markets over the medium to long term.

In our opinion therefore, there is merit in increasing allocation to equities (for those with a medium to long term view) in a phased manner and to stay invested. However, given the sharp rally in markets in last year or so, it is not advisable to invest in markets with a short term view.


Debt Update – March 2015

During the month of March 2015, the yield on 10-year benchmark Government bond (8.4% GoI 2024) ended at 7.74% as against 7.73% in end February 2015, up marginally by 1 bps.

The liquidity availed through various sources (Liquidity Adjustment Facility, export refinance, marginal standing facility and term repos) from RBI during the month was marginally lower at ~Rs. 98,252 crs as compared to ~Rs. 97,838 crs in February 2015. The NSE overnight MIBOR ended at 8.35%, higher than the rate seen in end February 2015 (7.79%).

The INR depreciated to 62.50 against the US dollar as compared to 61.84 at the end of previous month. The net FII investment in equities & debt was an inflow of ~US$ 3.5 billion in March 2015 as compared to an inflow of US$ 4 billion in February 2015. The net FII investment in equities & debt has been US$ 12.8 billion in calendar year 2015.

The annual rate of inflation, based on monthly WPI, stood at -2.1% (provisional) for the month of February, 2015 (over February, 2014) as compared to -0.4% (provisional) for the previous month and 5.0% during the corresponding month of the previous year. Headline CPI came in at ~5.4% YoY in February 2015 compared to ~5.1% in January 2015. Core CPI for February 2014 came in at ~4.9%.

Industrial production (IP) increased by 2.6% YoY in January 2015. Consumer durables output continue to declined, 5% in January 2015, while capital goods reported a jump to 12.8%. Electricity output increased by 2.7% and mining declined by 2.8% respectively


Outlook

In view of benign outlook on inflation, gradual fiscal consolidation and a sharp improvement in current account deficit, there is reasonable room for yields to move lower in the medium term. We maintain our view that interest rates should continue to move lower in the medium term.

Source for various data points: Bloomberg, Reuters, www.sebi.gov.in, www.rbi.org.in and Central Statistics Office (CSO) & HDFC MF

Financial Assets @ February 2015

MARKET UPDATE

Equity Market

Despite the continued rally, market valuation remains broadly reasonable.

• RBI cut its policy rates by 0.25% in January.

• We remain bullish on equities from a medium to long term perspective.

January was a topsy-turvy month for global markets. US markets were volatile and closed down for the month.

Volatility levels in the US have gone up in the last few months after being close to multi-year lows in the first half of 2014. European equities were up for the month while emerging markets were flat. Central banks continued to determine market sentiment - ECB initiated bond purchases, while the Swiss central bank gave up its policy of defending the Swiss currency level against the Euro. US Fed reiterated the likelihood of rate hike during the course of the year. In case of commodities, while crude oil continued its fall, Gold had a big rally.

Indian equities started 2015 on a positive note. CNX Nifty closed the month up 6.3%. Midcap index trailed the large cap index. Infrastructure, Financials and rate sensitive sectors performed well, while commodity stocks continued to lag.

RBI cut its policy rates by 0.25% in January. While the action was widely expected, the timing surprised the market as it was done out of the scheduled policy review calendar. The case for rate cut was pretty clear over the last few months as inflation had fallen sharply and seemed well within the glide path set by RBI. Market expects the RBI to carry out a series of cuts over the next 12-18 months. Lower interest rates should help revive growth and bring down funding costs for companies. On the government policy front, attention is focused on the union budget scheduled for February. The fiscal numbers will get a big boost from the fall in crude oil prices. There has been discussion on increasing public investments in order to jump-start growth. However the same will need to be balanced by the need to maintain the path for fiscal consolidation.

Reporting of quarterly earnings for the December quarter is currently underway. The expectations from the quarter have been modest given the continued weakness in the economy so far. Results declared so far have been broadly as per market expectations. Despite the continued rally, market valuation remains broadly reasonable. We remain bullish on equities from a medium to long term perspective. Investors are suggested to have their asset allocation plan based on one’s risk appetite and future goals in life.

Debt Market

• We expect RBI to cut rates further over the next 6-12 months.

• Domestic data continues to be supportive for the bond market.

• Investors with risk appetite should look to add duration in their bond portfolios while those with lower risk profile may look for shorter duration funds.

Bonds rallied sharply across the curve in January as the RBI initiated the rate-cut cycle.While the rate cut was widely expected by the market – especially after the previous policy review of the RBI – the timing had been a bit uncertain.

The RBI chose to surprise the markets by not waiting for the next policy review date in February.This is expected to be the first in a series of rate cuts over the next 12-18 months. The benchmark 10 year yield moved from 7.86% to end the month at 7.69%.

Crude oil continued its sharp fall in January. Fall in crude has allowed the government to hike excise duties and also bring down retail sales prices and this should help lowering inflation further & benefit the economic revival.

After a period of weakness, the Rupee had a sharp rally in January. Foreign investor flows (both in debt and equity) remain robust and the current account deficit is falling sharply thanks to the lower commodity prices (especially crude oil). India continues to remain in a much stronger position on the external front compared to most EMs. Our FX eserves have also continued to rise.

We expect RBI to cut rates further over the next 6-12 months. Investors with risk appetite shouldlook to add duration in their bond portfolios while those with lower risk profile may look for shorter duration funds.

Mantra : Be invested both in  Equity from medium to long duration & debt for all tenure.

Regards

Kajal Gupta

www.i2isolutions.org

(+919830293134)

Financial Assets@2015

Wishing one & all a very happy new year 2015……

The year 2014 has been a great year on expected lines for the financial assets. With the strong govt.  at centre the investor confidence (domestic as well as global) has turned into positive. However, investors are more than a little concerned that, going into the new year, markets are showing signs of volatility. The slipping and sliding in the front-line indices have shrunk year-to-date returns to around 30%. Before the correction, it was a good 36%. As we head into the new year, long- and short-term investors alike should evaluate market conditions. And then attempt to pitch investments for a decent shot at improving run rates. Here are a few points that could prove useful to spruce up your investment portfolio next year. Where we stand Global headwinds are likely to increase volatility and the effect will be felt throughout the world. First of all, we have been repeating for some time now that following the end of quantitative easing (QE) program in the US, the international environment is changing. For the first time we are faced with the prospect of interest rates in the US inching up, probably towards late-2015. In this context, the inevitable strengthening of the dollar would affect global fund flows. India, however, is better placed to withstand global choppiness. The Reserve Bank of India (RBI) has been factoring in the inevitability of QE coming to an end. Otherwise, we may have seen much lower interest rates today. This augurs well for India, as it can help tackle the tighter monetary policy, and a hike in rates in the West going into next year. Another advantage we have now is that commodity prices are significantly lower. Back in the market boom of 2007, commodity prices hit higher trajectories, creating problems for India later on. Now, oil has slipped below $60 a barrel and oil-guzzling countries, like ours, benefit through savings in foreign currency costs, along with helping contain inflation. Other base commodities are also at lower levels, and that helps reduce input costs for companies. So, India has become the best macro-country going into 2015. Infrastructure is one key area needs to be handed with care However, one hitch in our parade is the domestic capital expenditure (capex) cycle. The Indian economy only needs a little push,, which could begin with the government. India has yet to see the kind of investment in infrastructure that could revive the capex cycle. Many companies are sitting on under-utilized capacities and, therefore, are unlikely to increase capex in the immediate future. Hence, the onus to increase spending on infrastructure now lies with the government. We would be enthused if the government reduces the revenue deficit while letting the fiscal deficit remain a little loose, and in the process, opening its purse to spend on infrastructure. There is a need for the government to spearhead capex in the country, especially on infrastructure. Once the capex kicks in, the private sector will step in, turning it into a virtuous cycle. Lots of opportunities in the basket; It may be difficult for the Indian market’s performance in 2014 to persist into 2015. From that standpoint, We would encourage investors to enter equity markets with a horizon of at least three years or more. It is our belief that next year, there will be ample opportunities to accumulate equity assets for three years and more. Given the fundamentals of the economy, the macro-growth cycle has barely begun. In the past, it took four-six years for the growth cycle to take off. This time, with the added advantage of lower commodity prices, the Indian growth cycle has just started. Therefore, use the opportunities thrown up by corrections in the market to accumulate good assets as well as to look for underpriced equity assets. With the run-up, many sectors are well priced, but some names in the fast moving consumer goods (FMCG) sector do not offer much comfort. Public sector divestments should offer good opportunities to accumulate some equity assets at good prices next year. Again, 2015 should see the power sector recover within the next three-five years; and it now looks inexpensive. Over the shorter horizon of a year, the fixed income segment looks good, although upturn in debt had already begun in the past few months. With inflation cooling considerably, and oil prices drastically down, there is much room for the central bank to cut rates in the coming year. This should provide the requisite fillip to the debt market. A fixed income boom has to occur before growth in the economy shifts to a higher gear. The interest rate cycle has to turn for the leveraging cycle to begin; this would, in turn, boost the equity cycle.