Sunday, 6 March 2016

UNION BUDGET 2016

The Union Budget for FY 2016-17 is on the path set by the government in its previous budget that focuses on infrastructure, rationalization of taxes and overall development of the economy. The Union Budget has delivered on fiscal prudence while keeping a strong impetus on rural economy and consumption growth.


The budget was wholly aimed at improving the infrastructure of the country, especially in road sector. With monsoon not being adequate for last two consecutive years, the rural economy is under pressure, and hence, the budget had many provisions addressing the rural segment of the economy.


Meanwhile, there was also impetus on entrepreneurship and rationalization of tax structure for start-ups and new setups in the manufacturing sector.

Key Positives

Adherence to fiscal deficit target: Despite the pressures on the Government budgets, the Government has gone ahead with a fiscal deficit target of 3.5% of GDP for FY17 vis-à-vis 3.9% of GDP for FY16. This is despite providing allowances for the 7th Pay Commission recommendations and the OROP (One Rank and One Pension) scheme. This is extremely positive for bond yields and will raise the chances of a policy rate cut by the Reserve Bank of India (RBI) in the near term.

Capex: The push for infra development continues. Budget allocation for roads is up 25% YoY (year-on- year) at Rs 550 billion. Rail capex allocation is also up 30% YoY at Rs 450 billion. Overall plan expenditure is up 15% YoY at Rs 5,500 billion.

Rural: The budget provided huge impetus to rural sector. To alleviate the stress on the rural economy, the government has increased its planned spending. Through various rural schemes, the Government is budgeting to spend Rs 876 billion in FY17 on rural development (including rural roads, interest subvention on agricultural-loan, crop insurance etc.). This is up 20% YoY.

Social spending gains impetus: Social welfare schemes relating to women and children, healthcare, and insurance schemes have continued. All these have long-term positive ramifications, as social spending is focused through the organised route of financial inclusion.


Capital expenditure directed towards higher multipliers: While central government capital spending is increasing by just 4%, spending on roads and railways is increasing by 36% and 40% respectively. Central government spending on infrastructure (including capital outlay for railways) for FY17 will be Rs 2.2trillon, implying an increase of 30% yoy.



Macro Highlights



v  Gross Domestic Product (GDP) growth at 7.6% despite slowdown in global economy from 3.4% to 3.1%.
v  Consumer Price Index (CPI) inflation down to 5.4%.
v  Foreign exchange reserves touched highest ever level of about USD 350 billion
v  Fiscal deficit roadmap retained, 3.9% in FY16 and 3.5% in FY17
v  CAD (Current Account Deficit) reduced from USD 18.4 billion in first half of last year to USD 14.4 billion this year
v  Revenue Deficit target at 2.5% from 2.8% in FY 2015-16
v  15.3% increase in Plan Expenditure to Rs 5,500 billion; this is the last year of the 12th Plan. Total expenditure projected at Rs 19,781 bn.
v  Gross market borrowing at Rs 6 trillion and net borrowing at Rs 4.25 trillion. (Bond Market +ve)
v  Plan vs non-plan distinction to be replaced with Capital vs Revenue expenditure in FY2017.
v  Every new scheme to have sunset date and outcome review.

Key Changes in Direct taxes

Resident Individual Tax:
v  Citizens earning less than Rs. 5,00,000 p.a. to receive tax rebate of Rs 5,000 under Section 87A of The Income Tax Act, 1961. Earlier the tax rebate was Rs. 2,000.
v  Those living in rented houses and not getting HRA (House Rent Allowance) from employers to receive tax exemption up to Rs 60,000 under Section 80GG of The Income Tax Act, 1961. Earlier the exemption was Rs. 24,000.
v  First-time home-buyers to receive Rs. 50,000 as an additional tax exemption on interest payment for home loans up to Rs. 35 lakh for houses costing less than Rs. 50 lakh.
v    The government has given a 4-months window for individuals to declare income that was not disclosed to the Income Tax department under Income Declaration Scheme (IDS).
v  10% tax on dividends in excess of Rs 10 lakh received by individuals, HUFs (Hindu Undivided Families) and Firms under Section 115O of The Income Tax Act, 1961. (Applicable to dividend declared by domestic Indian Companies. Not applicable to dividends declared by Mutual Funds)
v  LTCG (Long Term Capital Gains) period for unlisted firms reduced to 2 years.


Corporate Tax:
v  Corporate tax: Accelerated depreciation limited to 40% of asset value for first year. IT rate for FY17 of relatively small enterprises, with turnover of less than Rs. 5 crore reduced to 29% plus cess.
v  10% tax on dividends in excess of Rs 10 lakh received by individuals, HUFs (Hindu Undivided Families); this will be in addition to DDT (Dividend Distribution Tax); LTCG (Long Term Capital Gains) period for unlisted firms reduced to 2 years.
v  100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019.
MAT (Minimum Alternate Tax) to apply in such cases.

Our Outlook : 2016 – Year to look forward to equity Participation

·         We believe that Fin. Yr 2016-17 budget is a balanced budget where govt. has maintained its commitments towards fiscal consolidations.
·         This is done at the time when inflation is likely to be benign and when the economy faces headwinds from global economic concerns, lower output and balance sheet stress.
·         Govt. borrowing in 2016-17 has also been contained and this could lead the way for the RBI to ease policy rates further.
·         The Union Budget also underlines the Govt’s determination to provide an impetus to the economy especially through the infrastructure, rural and financial sectors. It lays emphasis on repairing balance sheets of the banks, reducing nonperforming assets and boosting employment in the largest section of the economic pyramid.
·         Given this focus on reform, repair and revival, we see a prospective up-cycle in the economy.

·         The recovery process could provide ample opportunities to accumulate equities in 2016.

Tuesday, 26 January 2016

Market update - (Rare Opportunities to be Optimized)

This report has some macro analysis done for year 2016:
·         Market has corrected substantially
·         Good money could be put into equity in this month & March 2016.
·         This opportunity could be compared with year 1998, 2002, and 2008 though not on same magnitude.
·         In year 2011-12 FII were bullish on India when
Growth was down
Lot of Projects were getting stranded
Current account deficits were high
Inflation & Fiscal deficits were high
FII were bullish for two reasons oil was high Pension Fund were given mandate to invest in emerging markets. In those economic scenarios, emerging markets was way to go.
·         Year 2016 – Oil is falling & One set of FII ‘s are selling to mend their loss & other set of FII’s investors who invested in emerging market is selling as they have made good money & quitting with the trend.
·         Simple lesson to be learnt
When non fundamental selling is happening, it’s time to invest. In present scenario:
Inflation is low
Current account deficit is stable
Fiscal deficit is low with 3.3% trailing of last year
Govt. during this fall of Oil prices from 110 $ per barrel to 29$ barrel has amassed 500000 crore.
·         We are positive mainly due to two reasons:
1.       We belief with lifting of sanctions on Iran – Oil price will become stable & will rise from here & should settle around $50 per barrel.
2.       Banking space has come out with realistic NPL & there is enough reason to believe.
·         Entire Macro Economic factor are phenomenal.
·         Mid Cap index & Large Cap index are 52 weeks low. Mid Cap though still little overweight.
·         The growth we see would be increase in Capacity Utilization (replicating America growth of 2012 to 2014)
Currently around 70% of Capacity utilization is seen across sectors which are expected to go up to 100% in next two years without Capital influx.
This will further add to bottom line of the companies. Importantly market moves ahead & earnings come back ended.
·         Banking segment is also expected to bottom out in a year’s time.
·         Deflationary Deleveraging Cycle is on its bottom end. First mild leveraging cycle will start by 2017 to be bettered of in 2018.
·         5 Lack crore earned by govt. should be used to increase the growth during 2017 & 2019.
·         Raghuram Rajan has done phenomenal job by improving REAL INTEREST RATE.
·         We expect a rate cut again pre march.
·         Hefty Taxes has been collected in current fiscal due to exercise duty on Diesel & Petrol due to fall in International Oil prices.
·         We soft tax regime for 2016-17
·         Finally we could comfortably say year 2016 is year of Investment into Financial Market be it Equity be it debt & not of physical Asset with minimum time horizon of 2 years.

Happy Investing.

Sunday, 17 January 2016

January 2016 headlines











All these news when come up in public domain with lot of hue & cry … means corrections are behind us (if not there won’t be any more than another 10% spread over in next couple of month).

Right time to balance your investment by participating in the right asset for overall growth of the Portfolio.


Regards

Sunday, 10 January 2016

Financial Assets @ January 2016

Equity Market Update -
After good performance in 2014, Indian equity markets ended on a negative note in 2015. Globally also, barring DAX, CAC and Shanghai, all equity markets gave negative returns. The table below gives the details of the monthly and CY 2015 performance of key indices.



FII’s were a net buyer of $3.2bn of Indian equities in 2015. The Rupee depreciated 4.9% versus the Dollar in 2015. Domestic Mutual funds continue to see healthy inflows. Equity mutual funds net inflows in November 2015 were Rs 6,073 crs. Total inflows so far in FY16 have been nearly Rs. 64,000 crs. and inflows in CY15 till November were Rs 82,000 crs.

Commodities fell sharply in 2015. The table alongside gives the performance of key commodities in December and 2015.
In a widely expected move the US Federal Reserve raised the federal funds rate by 25 bps, from 0-25 bps range to 25-50 bps range during December. This was the first hike by the US Fed in over nine years.
The uncertainty around expected US Fed rate hike is now behind us. There is a clear evidence of falling commodity prices working to India’s advantage. Further, low inflation, improving CAD and fiscal outlook and rising order backlogs in some key infrastructure related industries point to a steadily improving growth prospects of the economy, especially of the capex cycle. The policy direction is right and economy is making good progress on most fronts. Economy and equity markets appear to be in transition from consumption to capex. Improving margin outlook of corporates, likely lower interest rates, soft commodity prices 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. Further, given the sharp outperformance of midcaps, Largecap / Multicap Funds should be preferred for fresh investment in our opinion.

Debt-Market-Update -

During the month of December 2015, the yield on 10-year benchmark Government bond (7.72% GoI 2025) ended at 7.76% as against 7.79% in end November 2015, down by 3 bps. The yield on 10-year AAA Corporate Bond ended the month at 8.37% as against 8.27% at the end of November 2015. Thus, corporate bond spreads during the month increased to 46 bps as against 33bps in the previous month.

Liquidity conditions continued to remain negative during the month of December. As against ~Rs88,406 crs of average liquidity net injected by RBI during the month of November through various sources (Liquidity Adjustment Facility, export refinance, marginal standing facility and term repos/reverse repos), ~Rs.1,21,795 crs of liquidity was net injected by RBI during the month of December. The overnight rate ended at 7.03%, as against 6.84% at end November 2015.

The INR appreciated to 66.15 against the US dollar as compared to 66.67 at the end of previous month. The net FII investment in equities & debt was an outflow of ~US$ 1.6 billion in December 2015. The net FII investment in equities & debt has been US$ 131.8 billion in calendar year 2015.

The annual rate of inflation, based on monthly WPI, stood at -1.99% (provisional) for the month of November, 2015 (over November, 2014) as compared to -3.81% (provisional) for the previous month and -0.17% during the corresponding month of the previous year. CPI came in at ~5.4% YoY in November 2015, up from 5.0% in October 2015. Core CPI for October 2015 came in at ~4.3% as against 4.1% in October 2015.

The US Federal Reserve raised the federal funds rate by 25 bps, from 0-25 bps range to 25-50 bps range in December. The Federal Open Market Committee (FOMC) also adopted a new conditionality for rate hikes in the future. The FOMC said that "in light of the current shortfall of inflation from 2%, the Committee will carefully monitor actual and expected progress toward its inflation goal." Thus inflation considerations will now take precedence over labor market conditions.


Outlook

With US rate hike behind us, anticipation of slow rise in US interest rates and high current spreads between India and the US 10 year yields, we feel Indian yields should head lower. It is interesting to note that the 10 year yields in India are back to where they were before the 50 bps repo rate cut by RBI in September 2015.

The moderate pace of economic recovery, low commodity prices, relatively stable exchange rate vs other emerging market currencies and proactive measures by the government with regard to food supply management should help in containing inflation over the medium term.

The recent hikes in excise duty on petrol and diesel will provide significant cushion to government to manage fiscal deficit against the additional burden of seventh pay commission and One Rank One Pension (OROP) in our opinion. Low inflation and benign inflation outlook, falling fiscal deficit and low Current Account Deficit (CAD) are all supportive of lower yields. As highlighted repeatedly over the past several months or so, we continue to recommend adding duration to fixed income portfolios.

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

Sunday, 3 January 2016

Happy New Year 2016

Season Greetings…

We would like to you wish a very happy new year 2016 by sharing very meaningful story…

7 ways financial goals are like dieting

by Richard Barrington (

Dieting is not a popular topic around the holiday season; but perhaps with caloric temptations everywhere you turn, this is the best time to be thinking about it. Similarly, the holidays are a time of year when people tend to let themselves go financially, so a reminder about financial discipline might also be timely. After all, working toward financial goals is like dieting.
I have all too much experience with dieting - my weight has tended to yo-yo quite a bit over the years - and I also spend much of my time thinking about strategies for meeting financial goals. In thinking about the two topics together, I came up with seven ways that working toward financial goals is like dieting:
  1. Goals should be incremental rather than all-or-nothing. Its not so bad stepping on the scale when you first start a diet, because you can be comforted by the lofty goal of how much weight you intend to lose. The hard part comes about a week later when, after days of sacrificing and exercising, you find that you have only made one pound is worth of progress toward your 30-pound weight-loss goal. Its a little discouraging -much like your first year of saving for retirement, when you find that after a year of sacrificing part of your paycheck, your 401(k) balance is only $3,000 toward your goal of saving a million dollars.
    This is where incremental goals become important. If you know that losing a pound in that first week of dieting, or saving $3,000 in that first year of 
    401(k) contributions, is what you need to be on track to eventually make your long-term target, then you can take satisfaction from having met your goal for that first time period. From there, you set your sights on the next short-term goal.
  2. Be realistic about being better tomorrow. We tend to have this touching faith in how virtuous we will be sometime in the indeterminate future - people expect they will eat less when summer comes or save more when they are in their 40s. But to make dieting or saving work, you cannot lean too heavily on that future you. Chances are, that you will be no more up for the task than the current you, so make sure you do your share of sacrificing now.
  3. Build in room to be bad occasionally, within limits. Few of us - certainly not me - are built for living a spartan existence full time. Build the occasional indulgence into your diet or your savings plan. If you can limit such things by planning for them, you can give yourself a much-needed break now and then without completely blowing the good work you have been doing.
  4. Do not let one setback become an excuse for giving up. And then there are the indulgences that are not planned. If that happens, the main thing is to bounce back strong. There is a tendency once you overeat or overspend to feel that now you have blown it and your original plan has become futile. Do not give up just because of an occasional screw-up. Make a new plan to get back on track.
  5. Hold yourself accountable. This is very important, because you can always find an excuse for bad behavior if you want one. Do not accept excuses. If you overeat or overspend, it is because you failed to live up to your responsibility to yourself, and you need to do better next time.
  6. Announcing your intentions can create additional accountability. Sometimes, telling people that you intend to lose 30 pounds puts the pressure on yourself to follow through - and it might even make others more sensitive about not putting temptation in your way. It is a little tougher to be so open about your financial goals, but simply mentioning to a few close friends that you are trying to save more money can have a positive effect on your behavior and theirs.
  7. Think of it as a lifestyle change, not a temporary project. I struggle with this nutritionally, but I am getting better. Permanently changing your habits can actually be easier than gearing up for occasional periods of good behavior because, with dieting and saving, it is easier to stay on track than it is to get back in shape once you have let things go.

Nutrition is a very complex subject, and so is finance. However, while there are many nuances to be mastered, to a large extent a successful diet and a successful financial plan both come down to common sense and willpower. Best of luck to all of us for mustering both common sense and willpower as we head into 2016!

Wednesday, 25 November 2015

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.