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.

What the new Vikram Samvat year 2071 holds for us.

Season Greetings

The new govt. has delivered more than expected impetus to our slowing down economy to turn it into recovery mode. GDP projections nos. is being upgrade from 4.5% (six month back) to 5.75% to 6% for the current Fin yr. ending March 31 2014.

Apart from investments commitment from Japan, China, U.K. & USA other countries are coming forward to explore abundant opportunity (minus redtapism) provided by this govt.

Deregulation of diesel prices is one big decision taken in right direction. As a result it’s not only being cheaper by 6% to 8% but has also brought down subsidy by Rs. 15000 cr.

Government initiates coal reforms with ordinance to facilitate e-auction of coal blocks for private cos; also opens door for commercial mining by private players in future.

Government panel asks the Department of Telecom to work out a mechanism for allocating airwaves to successful bidders within 90 days of payment.

The multi-billion exploration auction of Eastern Ghat has again taken centre stage. Once successfully through will itself be in position to add another couple of percentage in GDP nos.

From investor perspective, all these initiatives are going to be generating very healthy returns from the equity market, if one decides to stay invested at-least, for next 4-5 years. On the other hand debt fund will continue delivering handsome post tax returns for investment horizon of more than a year.

Regards

How to maximize your Tax savings Under Section 80C of Income Tax Act of 1961

TOTAL REBATE ALLOWED IS 125000

(I)                100000 through investment qualified under section 80C as defined below

Options:

·                  Market Linked – ELSS / ULIP

·                  Fixed Income - PPF / NSC / Senior Citizen Savings Schemes / EPF / NABARD BONDS / Tax Savings Fixed Deposit.

·                  Others – Life Insurance Premium /Repayment of House Loan (Principal)/Children Tuitions Fee’s

Details also available at our website www.i2isolutions.org/tax_savings.htm

TAX SAVINGS OPTION RECOMMENDED UNDER 80C FOR REBATE OF EQUAVALENT AMOUNT UPTO ONE LAKH UNDER 80C OF INCOME TAX ACT 1961

1-      FIXED DEPOSITS – Investment tenure 5 years

National Housing Board (NHB) Suvridhi Tax Savings (Under 80C) Fixed Deposit Scheme

Investor Category	Period	Interest Rate(%.p.a)	Maximum Deposit	Maturity Value	Yield (%.p.a)	Effective Annual Yield(%.p.a.) –including Tax Saved in Highest Slab of30%
General	60 Months	9.25	100000	157970	11.59	17.77
Sr. Citizen	60 Months	9.85	100000	162670	12.53	18.71

2-      Mutual Fund – Investment tenure 3 years

 Tax Savings Equity Linked Savings Scheme’s

Scheme 1 year 2 year 3 year AXIS EQUITY LONG TERM FUND 17.70 15.60 13.60

Performance Track Record of suggested scheme as on date.

(II)             Additional Rs. 25000 through investment in RGESS qualified under section 80CCG

RAJIVE GANDHI EUITY SAVINGS SCHEME Under section 80CCG

·         Investment Tenure 36 months

·         One time investment opportunity in life time for additional exemption of Rs. 25000 income(over & above one lakh) if the applicant has never traded Shares via DMAT account & has gross Annual Income less than 12,00,000/-

·         The exemption is available to invest up to Rs.50000 to get rebate of Rs. 25000.

·         Eligible Scheme available only at the moment is HDFC RGESS from HDFC Mutual Fund & LIC NOMURA RGESS from LIC Nomura Mutual Fund

What is - U.S. Fed Tapering - very much in news in recent times

An interesting story will make it understand better…

Mr. Chintamani owns a small sweet shop in Delhi. His wife Bhagyawanti is a home maker and takes care of their two kids Arnab and Barkha who study in college.

Chintamani with great difficulty sets aside Rs. 15,000 a month for household expenses. This amount is sufficient to run the house but not enough to fulfill Arnab and Barkha's growing needs of entertainment and extra-curricular activities.

Arnab and Barkha remain dejected and left out from their peers as they don't have enough pocket money to spend.

Chintamani cannot withstand his kids' sadness and decides to increase the monthly household expenses. He sets aside an additional Rs. 5,000 a month as pocket money as long as the kids behave well, study diligently and score good marks in exams. He wanted to fulfill all their wishes and hobbies even though he had to put an extra effort to earn that incremental Rs. 5,000 every month.

This made Arnab and Barkha happy as they could now do everything that their friends could do or afford. This positive energy reflected into their studies and they scored well in their college exams.

Chintamani and Bhagyawanti knew that their kids are now ready to take on the challenge to earn their own livelihood and become financially independent. So, they decide to gradually reduce Arnab and Barkha’s pocket money by 5% every month till the time they find a part-time job for themselves of their choice.

This process of gradual roll back of pocket money is similar to tapering under way by the U.S. Federal Reserve (popularly known as Fed).

What is tapering?

Tapering refers to the reduction in the quantum of the bond buying programme by the Fed.

The bond buying, also known as the Quantitative Easing (QE) program was launched to kick-start hiring and growth in the US economy. The Fed's first QE program was launched in the midst of the 2008 financial crisis.

But why is Fed tapering now?

The Fed's decision to taper its massive bond buying is due the recovery in the US job market and the confidence that the economy will continue to grow inspite of the tapering.

Hope the above explanation would have given you an idea of the Fed tapering.

Excerpts from TATA MUTUAL FUND. Just name of the character has been changed…

Why do we accept possitives immediately while try to find loopholes in negative news...ANY ANSWER ?

Our friend Mr. Herman Brodie  owner of cognitrend Gmbh, Prospecta Ltd explains its better.. thought of sharing with all of us.

Sure...cognitive dissonance. Leon Festinger had the answer to that in the 1950s

On the contrary, cognitive dissonance explains why investors cherry-pick information to justify decisions they have already made. It explains why the "Wall of Worry" exists. It even provides an explanation for the disposition effect. 

My experience with investment teams is that as soon as they learn about how cognitive dissonance manifests itself in decision-making and how to recognize it, the subsequent group discussions change. Decision makers become more critical and more willing to challenge one another. If I had 30 minutes to teach an investment team just one behavioural topic, it would be about cognitive dissonance.

Your opinion on same if any is welcome…

Here's to a new beginning

Like every year 2013 witnessed its fair share of ups and downs. We had India successfully launch its maiden mission to Mars and closer to business, the Sensex touched an all-time high combined with the mutual fund industry assets nearing the INR 9 trillion mark. But we also had some emotional low points with SRT leaving the cricket field for the very last time and the passing away of the "Gandhian" of our times - Nelson Mandela. I don't want to comment on the political turmoil as much has been said already.  

At i2isolutions we've had our moments of excitement. Firstly, your efforts have helped us grow our Asset Under Management by 12% over the last year. The year also saw our business reach an important milestone of completing a decades since inception. It's a matter of pride that close to 600 investors advised across the globe have remained invested through these years & benefitted from wealth creation opportunity. Mutual  Fund in particular has taken care of long term investment (through Equity Schemes). Short Term investment objective were met through Debt Fund where Post Tax returns were delivered better  than any other asset class including Bank Fixed Deposit.

I would also like to highlight some of our special initiatives to assist you through our website www.i2isolutions.org whereby you are facilitated to track your Portfolio Online. Apart from the Market news on daily basis & Market Updates on periodic basis some useful tools are also provide which can assist you on Taxation aspects as well as allocation of resources to be set aside / invested to meet milestone objectives in life.

Every new year brings with it - HOPE !!! With the general elections round the corner, we HOPE for a stable government at the centre to help bring the country back on the path of sustained long term growth. As someone once said ...The New Year always brings with it another chance to get it right!!!

On behalf of Investment to Insurance Solutions, here's wishing you a Happy New Year.