Financial Wobble

 The last two months namely has been quiet volatile for Indian economy with regards to all asset class. The problem started with plumbing of Rupee to Rs. 69 from 53-54 levels in May 2013. The depreciation which was long due for some time resulted in this sharp fall with the news of recovery of largest economy of world – America.

In Macro term CAD (Current Account Deficit), Fiscal Account Deficit rose up sharply. Industrial output data, unemployment data, inflationary pressure all added fuel to already subdued economy on exchange front.

From MICRO perspective, we saw free fall of Sensex by 10% (on positive note recovered 7%) and also Bond yield rose sharply by 10% - 20% across duration, but eventually settling down at meaningful level.

The panic was not only seen back at home but in all the developing, emerging & frontier economy as well. US Dollar was seen emerging stronger against currencies of all these economy.

The major culprit for all unfavorable scenarios was the announcement of US Federal to slow down austerity back home which signal the recovery of US economy. Eventually the FII’s started redeeming their investment from emerging markets & increasing the allocation in US Treasuries. As we were already struggling with existing CAD problem it further got multiplied.

With new RBI Governor in office and his initial initiative backed by govt. policies Rupee fall is seen arrested and confidence in Indian market seems to be returning with FII’s investment of 6000 cr (aprox) in equity market & more importantly in excess of 3500 cr. investment in Indian debt market.

 We still maintain, debt segment of Mutual Fund is the best segment ever with interest rate settling down and Short Term Rate giving very good option of returns in excess of 10% & with indexation Tax Free returns of around nine percent. 

Depreciating Rupee matter of concern? Inflation Index Bond, NRI Bonds on offering…

Very recently (since couple of months back) when Gold was plummeting, it signaled the rise of its competitor Dollar. All global economies maintain their financial reserves in these two asset class i.e. American Treasury Bills and Gold. Composition changes with changing economic scenario.

Since last week when the news started unfolding regarding recovery of the American economy & that they are considering to reduce the stimulus flared Dollar against all currencies worldwide (intensively against currencies of emerging market including India.)  

Interesting point is where it settles. Current Account Deficit is still a major concern for our country. The improvisation on same is main economic challenges which are huge on account of rising Crude prices & gold imports. In order to improvise same govt. is planning to raise Dollar deposit thru NRI Bonds, which shall be in news within a month’s time. It should be a good opportunity to all our NRI friends to invest in same at very lucrative rates.

Investor back home will also be oblized with Inflation adjusted Bonds (new kind of product) which shall be ensuring your return over & above the governing inflation rate.

Further, we re-iterate that Bank FD should be replaced with equally safe & secured Debt Funds which are providing around 9% tax free returns.

Huge Optimism built up before RBI takes a shot on interest rate

Earnings, Growth in last quarter is still in single digit, which is worrying factor. However decline in Crude & Gold are good macro positive which would limit downside. Market currently trading at 16x which is expensive, without any catalyst playing in its favour. We don’t expect rate cut by RBI on its economic review May 3^rd. Even if it happens may excite market for temporary rally to fall back & settle around Nifty 5600 levels. Commodities – Gold & Silver in particular - to cool their heels for some more time.

Debt Funds going forward would be safest haven to park fund as it will be delivering around 10% Tax Free Returns on year on year basis. Just ensure which funds suits your criterion before going for same.

What to expect from 2013-14

If demand contraction (as we have seen last quarter data) is anything to go by – resultant we have supply constraint which leads to lower inflation creating scope for lower interest regime. Correction in commodity & real estate market prices soon to be factored in prices. Decline in Gold import and lower inflation (on account of demand contraction) has given elbow room to manage CAD (Current Account Deficit) more efficiently. Being FII’s inflow at its best - going forward lot will depend how FDI nos. (in-flows) will be unfolding with all possible innitiative taken by the govt.

Usually May month is not good for the equity market… having said that equity market should be range-bound with upward biased in current election year.

Debt is one market where one can be assured of  9%-10%TAX FREE RETURNS(equally safe as bank deposit)- which is more than what anyone can ask for………. SO ITS HIGH TIME WE SHOULD REPLACE OUR BANKS TRADITIONAL FIXED DEPOSIT SCHEMES WITH SAID FUNDS.

Relax! India will outperform by year-end:

 Indian equities have had a rather unexpected wobbly start to 2013, after showing remarkable resilience in 2012. This shakiness, according to Sakthi Siva of Credit Suisse, has to do a lot with investors booking profits on their investments. Her own strategy is to buy the dips. So with recent correction, they are highlighting India now as one of the four cheapest markets in the region." she told CNBC- TV18 in an interview”. 

This is the fifteenth time since 2000 that India has made it to the "cheapest four" list of Credit Suisse and 13 of the 14 times India has outperformed. "I am quite confident that India by the end of the year will actually be a major performer," Siva says.

HSBC Global AMC – Investment Director-India Equities thinks’ likewise when he say’s India is looking good. There is a lot of opportunity. We find a lot of attractively valued stocks in India.

Going forward the Indian markets looks volatile, reacting & over-reacting every news coming along….. Having said that the trajectory will be upwards… good opportunity for investors with three time horizon.

For investment tenure of 12 months to 18 months stick to Debt Fund for post tax returns around 9%. In other words it’s high time you get rid of your traditional Bank FD. 

HOW BUDGET 2013-14 BENEFITS YOU

Budget presented can be described as solid, sound & credible. Not a spectacular one, no fireworks, not an election budget in the sense of populist giveaways, but yes, a subtle election budget- to bring inflation down, stimulate growth, make sure that foreign investment comes in & keeps rupee strong so that CAD (current account deficit is fixed. It aims to satisfy the investment community, the voters and also promotes the notion that India is turning around. It is, therefore, not an austerity budget. The importance of stability in tax rates is well highlighted & the surcharge on the super rich for one year will be entirely acceptable. The budget seems to be positive for the markets and for the economy.

SALIENT POINTS

• FY13 growth rate pegged at 5% and FY14 growth pegged at 6.1-6.7%
• Capital Markets
• Proposed launch of inflation indexed bonds;
• RGESS modified to include mutual funds and investments in three consecutive years; RGESS income limit raised to Rs. 12 lakhs;
• STT reduced and introduction of commodities transactions tax
• Fiscal Deficit: To be reduced to 4.8% in FY14 from the revised 5.2% in FY13
• Taxation
• No change in taxation slabs or tax rates
• Tax credit of Rs. 2000 for individuals with total income up-to Rs. 5 lakhs
• Surcharge of 10% on individuals with annual taxable income of over Rs. 1 crore
• Surcharge increased to 10% from 5% on companies with annual taxable earnings of over Rs. 10 crore (5% for foreign companies)
• Surcharge on dividend distribution tax raised to 10% from 5%.
• Addl. Rebate of Rs. 1 Lac (over and above Rs. 1.50 Lacs presently) for Interest on 1st Housing Loan for a House Value up to Rs. 25 Lacs.

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Time to Capitalize opportunity created in Market:

Classic example of Media hype:-

Today’s ET headline: - “Market Mourn as Fed Looks to Withdraw Stimulus Measures”

However those who would be affected most are nonstop pumping money in our economy and environment back home is created as if everyone should become seller in market or at-least should not think of fresh investments:

How-ever actual scenario is that market is gone in oversold region(courtesy BEARS) & since investment support has weakened on account of advance tax outflow as well as yearend financial adjustment in  Balance-Sheet, it has weakened buying support resulting weakening (correction ) of indices.

We expect the recovery to start definitely at 5700 NIFTY if not at 5800 levels which is currently trading around 5844 levels – this on account of –

The slide on account of cutting losses by Short term buyers who bought around NIFTY-6000 or + LEVELS & squaring of Oversold position by buying again into market at relatively lower levels to profit from same post Budget.

Generous Call: Its high time going forward to replace your Bank Fixed Deposit with Pure Debt Funds which is relative safe & delivering better Post Tax returns with instant liquidity features for investment tenure of six months onwards....