Financial Market @ October 2017

The market continues to swing from end to end, in a way is consolidating at its peaks but remains steady. At one end the growth moderation has caused some concerns. But at the other end is the uptick in the industrial production as marked by IIP. In July, IIP grew by 1.2% yoy against -0.1% in June. In Aug-17, exports picked up by 10% over the last year. Trade growth needs to be sustainable.

Structural reforms have come in. The push for transparency in capital management, tax compliance and general corporate governance may stimulate entrepreneurship. This is likely to result in sustainable long term growth over a period of time. Though much is needed to be done on the policy front. The initial teething troubles howsoever temporary have an economic cost. Simplification and ease of doing business are the hallmarks of GST; and that principle must be ensured.

The monetary policy stance continued to remain unchanged for October 17. Inflation concerns are clearing dominant in central banker’s risk matrix. Growth may now increasingly be dependent on the swift resolution of the stressed banking assets; and the resumption of the banking credit to the commercial-sector.

In the phase of consolidation fresh investments in equity segment have to wait for 2 to 3 year of time horizon to see meaningful gains. Debt fund should continue deliver better post tax returns over three year of holding.

(With inputs from Mr. Nilesh Shah – Kotak Mutual Fund)

Financial market Update @ September 2017

 With GST being reality – all eyes on Inflation…

During FY09-FY14, India clocked near double digit consumer price inflation, leading it to being eventually termed as a ‘fragile five’ economy in 2013. This eventually led government to rein in fiscal profligacy, restrain the MSP rise and adopt a more efficient approach in food-supply management. The RBI, too, embarked on a more explicit inflation targeting regime. With fortune favouring the bold, global commodity prices turned course and collapsed meaningfully since 2014 and continues to stay relatively low. All this aided the dis-inflationary wave starting as early as mid-2014. Presently, India CPI inflation is tracking below RBI’s central target of 4%. While we do not expect such benign inflation to continue for long, neither do we see inflation breaching the central bank’s tolerance limit in foreseeable future. Inflation is likely to average at 3.4% in FY18 and 4.2% FY19 leaving scope for further easing unless private investment climate improves dramatically. Other risks to further monetary easing is sharp global commodity inflation, impending normalization of the balance-sheet by US Fed and Indian central government supporting growth over fiscal consolidation.

We don’t see equity market making headlines for not so good reasons. Corrections & Consolidations would be the terminology mostly used to define the status quo. Well certainly the surge there-after is going to be remarkable (which should surface only after discounting the GST led Inflationary pressure in some nine to twelve month. Diwali next year should be the trigger point. Unless and until the prevailing liquidity in the system doesn’t  expedite the run … keeping aside the key economic factors.

Good time to amass units of good diversified multi-cap funds from here.

The Bull Run is here to stay for some good years before it reacts to the unfolding of Global Financial Uncertainties.’

Debt Fund returns should be range bound with steady returns as per the duration of the scheme. The Debt Fund returns are safe & better than any Bank Fixed Deposit on three year time horizon with Taxation benefits. (Cumulative returns of more than 3 years are treated as Capital Gains and after indexation the entire returns works out to be Tax Free)

The inputs on Inflation is factored from SBI Mutual Fund analysis…

Financial Market Update @ August 2017

We are pleased to share Market Update with regard to recent financial development in the Indian Market.

RBI after the gap of 10 months cuts Repo rate by .25% bringing it down to 6.00%. This new rate augment well with the present CPI based inflation at 1.08% & wpi based inflation at 1.88%.

Going forward the challenge will be to contain inflation as it is set to rise on account of GST. GST in initial days i.e. 12 months to 18 months will be pushing inflation on higher side & it will be big challenge for RBI how it is going to manage interest rates in near future. I will not be surprised to see balancing act by RBI on quarterly basis. So Debt funds based of duration statistics be aware of your Portfolios.

And rightly so with the announcement of this rate cut – the run was over. Market traded on 2nd August 2017, at all time high of 32686 (BSE) and 10137(NSE Nifty50).

Market is corrected almost 3.50% till date & has appetite for another 4% to 5% from current level. Even after this estimated corrections market is not expected to bounce back strongly. In the better interest of the long term investor it should spend some time there before signaling out its forward march may be till December 2017. The Permutation & combination at that point of time will decide whether market would like to see another significant correction further or not. The ample liquidity in market (courtesy -November 8, 2017 – demonetization) is & shall be providing desired cushion to the market.

The 2^nd & 3^rd quarter earnings are expected on the lower side. Govt. via SEBI has tightened its noose around major 331 companies & almost deli censed almost 1.75 lakhs of dubious companies from the stock market.

These are enough reasons for market to have sideways movement which eventually should turn out as blessing in disguise for healthy market.

SIP as rightly fits the bill & is correct way to participate in these market with medium to long term investment horizon with earning forecast of around 12% p.a.

Debt fund accrual based will be doing all good, by delivering around 8% to 8.50% tax free with 3 years of time horizon.

Happy Investing

Bubble Ahoy!

Bubble Ahoy! -

Across the world stock market are inflating crazily. Don’t think that the Sensex boom is driven by Indian policies and economic results. Yes India is the fastest growing major economy in the world. Yes GST and Modi’s other incremental economic reforms are significant achievements. But stock markets are booming everywhere else too. To grasp what is inflating the boom, look at the world economy.

The Global economy is no longer growing at the breakneck speed of 2003-08. The printing of trillions of currencies & issuance of no less than same value of sovereign Bonds by Western economies has fuelled this boom. Sooner than later the corrective measures will be taken by these economies, hence it can’t continue like this. The transition would be interesting.

So, to judge coming trends, do not focus on just trends or signals from the government; RBI or Indian economic indicators. The big shocks will be global in origin, with unpredictable timing.

The bubble can continue inflating for years before bursting. Remember, Robert Schiller got rave reviews for writing Irrational Exuberance in 2005, yet the US bubble inflated for three years more. The end is always nasty, but can get postponed for remarkably long periods.

Excerpts from - Swaminathan Ankeleshwaria Aiyar article in Times of India( July 16, 2017).

Credit Policy Review - June 2017

Credit Policy Review - June 2017   The Monetary Policy Committee (MPC) voted 5-1 in favor of leaving the policy repo rate unchanged at 6.25% in line with consensus expectations. The reverse repo rate has also been kept on hold at, 6.0%, while the cash reserve ratio (CRR) remains at 4.0%. However, the RBI has reduced the statutory liquidity ratio (SLR) to 20% from 20.5% from June 2017 in order to provide banks with greater flexibility in their lending operations. The RBI sharply lowered its inflation projections for first half of FY18 to 2.0%-3.5% (from 4- 4.5% earlier) and for second half of FY18 to 3.5%-4.5% (from 4.5-5% earlier), with risks evenly balanced, rather than being on the upside as suggested earlier. It also lowered its FY18 GVA growth projection marginally to 7.3% from its 7.4% projection made during the April policy meeting. Despite CPI inflation moderating sharply in April, the MPC decided to leave policy rate unchanged because as per RBI - “premature action at this stage risks disruptive policy reversals later and the loss of credibility”. In the press conference, the RBI stated that the current moderation of inflation was due to several factors - demonetization, supply glut etc. - that are very difficult to disentangle at this stage; thus, the MPC needs to ‘unravel’ these factors before taking any action. The RBI maintained its neutral policy stance, stating that it would “remain watchful of incoming data” as it needs to assess “whether or not the unusually low momentum in the reading for April will endure”.

Conclusion-and-Outlook With rising yields and encouraging developments in inflation, INR, US interest rates and improved clarity on GST, monsoons etc., we had recently highlighted (read our note: Risk Reward Reasonable, Once again dated June 1, 2017) that the risk reward in fixed income markets was reasonable. The MPC in its credit policy review today kept policy repo rate unchanged with a less hawkish tone and sharply lowered inflation projections for this fiscal year. In case the incoming data reaffirms the moderating path of inflation, it may create some space for easing in our opinion. HDFC MF Reveiws-