Invesment strategies for 2014 and beyond

An year end is a reflection time. And for investments too. New resolutions , tactics and strategies for investments in 2014 require some preparation.

Personal profiling and understanding goes a long way in managing the portfolio.

This section deals with the larger trends of 2013 and how to benefit from the emerging sceanario once you have successfully profiled yourself.

Experts say that events shape up future course of action for the market. so let us look at the events that may have a bearing on the market for good or bad

1. General Elections 2014.  After the verdict in Delhi , some are of the opinion that polls are already discounted by the market.
2. US Tapering. Though the first news sent shivers across capital markets, the latest news has reverted the trend.
3. Recovery in euro-zone. It could give positive signal for the capital markets.

The best performing sectors has been Pharma, IT and the International Funds especially the ones focussed on US stocks

Gold will continue to have its position in the portfolio of most of the indian families. As part of your diversification strategy, one should have some gold in portfolio. It may not give you handsome returns, but it may reduce the wash out.

As the RBI starts rate reduction, the MIPs will do better. Till such time it will be FMPs that would be thae investor's darling.

Major events in the MF industry  during 2013 are
1. Launching if Infrastructure Debt Mutual Fund scheme
2.  Acquisition of Morgan Stanley MF by HDFC MF
3. Weakening of base for Index MF schemes


Nothing drastic is expected in 2014 and QE by US would be beneficial for the equity markets. The Oil & Gas sector will see better days with gas pricing policy in place. the dream themes for 2014 may be pharma, IT and banking sector.

happy investing

Living through the rising Interest Rates & Inflation

The inflation rate in India rose to 7 percent in October 2013, the highest level in last eight months despite efforts by the central bank to rein in prices by hiking interest rates.Government figures released Thursday showed that prices for food were up 18.2 percent, with vegetables leaping by 78.4 percent. Fuel prices were also sharply up in October, rising 10.3 percent.
it is not true any more.

The economy expanded 4.4 percent in the April-June quarter, far below the 8 percent rate the country averaged a few years ago

Most of the Mutual Fund debt schemes are giving low rate of returns and investors face capital erosion. In the last three years, the real estate sector and oil sectors have not performed well. power sector got beaten up with coalgate scam and telecom also had its share.

The changes in inflation in USA is exported to othere nations through the exchange rates. India which went on a rate reduction spree has reverted its course and continues on incresaing repo-reveres repo rates.

The competitive deficit financing resorted to by other Govts are impacting India's Inflation  rates and Interest rates.

During the Inter-war years,   countries resorted to competitive devalautioon and deficit financing which gave birth finally to IMF and World Bank supervised by  European and USA respectively immediately after WW-II. When major problems exist in their economies, they are not going to support developing economies.

The systems and organisations have proved themselves not suffivcient to deal with the new complexities that emerged subsequently.

New Developments on the International scene in view of impending US tapering impacts

Nowadays, nations are entering to SWAPS at central bank level for protecting trade interests.
China's SWAP with Europe, South Korea, Brazil, Australia, etc,. could lead to internationalisation of Chinese renminbi(RMB) there by reducing the supremacy of USD.

The Bank of Japan, U.S. Federal Reserve, the European Central Bank, the Bank of england  and the central banks of Canada and Switzerland have made similar arrangements.

Both the Bank of Korea and the Bank Negara Malaysia announced on Sunday 20 the October 2013 that a bilateral agreement that allows the exchange of local currencies of 5 trillion won ($4.7 billion), or 15 billion ringgit, valid for three years, extendable on mutual agreement  was reached.
Both central banks stated the currency swap deal is aimed at encouraging the use of local currencies in bilateral trades while strengthening financial cooperation.

So eventually, India may also join party

The rupee was the worst performing Asian currency between end-May and September 3, 2013 losing close to 30 per cent from the beginning of the fiscal. Between April 2 and Monday,November 11, 2013 the rupee is still down over 16 per cent.

Measures by RBI

  Two special windows for swapping foreign currency non-resident (banks) deposits and overseas foreign currency  borrowings by banks, coupled with the one for oil companies under which RBI directly sells dollars to them, apart from the sentiment booster that new Governor Raghuram Rajan offered in his inaugural address, have been the main reasons for the massive recoup of the rupee.

To increase the flow of credit to the export sector to support incremental Pre-shipment export Credit in Foreign Currency (PCFC) by banks, they will now have the option to avail rupee refinance to the extent of the swap with RBI under a special export credit refinance facility. The facility will be available to banks from January 21 till June 28, 2013, for a fixed tenor of three or six months. - See more at: http://www.erewise.com/current-affairs/RBI-introduces-Dollar-Rupee-swap-facility-to-boost-export_3597_art50fa78c14effa.html#.UoTzGMWOxkQ

To increase the flow of credit to the export sector to support incremental Pre-shipment export Credit in Foreign Currency (PCFC) by banks, they will now have the option to avail rupee refinance to the extent of the swap with RBI under a special export credit refinance facility. The facility will be available to banks from January 21 till June 28, 2013, for a fixed tenor of three or six months. - See more at: http://www.erewise.com/current-affairs/RBI-introduces-Dollar-Rupee-swap-facility-to-boost-export_3597_art50fa78c14effa.html#.UoTzGMWOxkQ

To increase the flow of credit to the export sector to support incremental Pre-shipment export Credit in Foreign Currency (PCFC) by banks, they will now have the option to avail rupee refinance to the extent of the swap with RBI under a special export credit refinance facility. The facility will be available to banks from January 21 till June 28, 2013, for a fixed tenor of three or six months. - See more at: http://www.erewise.com/current-affairs/RBI-introduces-Dollar-Rupee-swap-facility-to-boost-export_3597_art50fa78c14effa.html#.UoTzGMWOxkQ

Another window for exporters for funding Incremental Pre-Shipment Credit in Foreign Currency was also introduced.

The Investment World and current Interest rates in India

Behaviour of Interest Rates offered by different banks ranges from 7.75% to 10.10 % ; The rates applicable on post office, PPF, senior citizens scheme and NSC certificates offer an upper band below that of the banks.

The interest rates for NRIs range between 8% to 9.5% with different maturity

The returns from Mutual Funds are historic in nature unlike the above categories. What we have lived through is captured by them.

Planning for investment is, therefore important. Even if one is not a NRI or nothing to do with exorts and imports, is affected by the global events.

The strikes and hartals against inflation is a mental preparation for planning for meeting  the rising expenses as far as the Malayalis are concerned.  So let us plan to remain healthy & wealthy

To increase the flow of credit to the export sector to support incremental Pre-shipment export Credit in Foreign Currency (PCFC) by banks, they will now have the option to avail rupee refinance to the extent of the swap with RBI under a special export credit refinance facility. The facility will be available to banks from January 21 till June 28, 2013, for a fixed tenor of three or six months. - See more at: http://www.erewise.com/current-affairs/RBI-introduces-Dollar-Rupee-swap-facility-to-boost-export_3597_art50fa78c14effa.html#.UoTzGMWOxkQ

India melts down...

Rupee depreciation is a concern for all those who usses imported items; Petrol and  Gold being heavy for India


According to the annual report of RBI for the year ended March 2012, it is suggested that the pass-through of the depreciation of the rupee exchange rate by about 11 percent in the four months of 2013-14 is incomplete and will put upward pressure as it continues to feed through to domestic prices


Measuress taken by Raghuram Rajan for reversing the Rupee depreciation and more:

1. Special windows for banks
      a. For NRI deposits taht mature in 3 years or more capped at 3.5%
      b. For  swapping $ borrowings  at a rate 1% less than the ongoing rate
      c. Doubled Banks overseas borrowing limit

Banks will swap their dollar funds—flowing through both the NRI deposits and overseas borrowings—with RBI with rupees, and when they are required to repay their depositors and lenders, they will get their dollars back from RBI. The cost of converting the dollar fund into rupee at market rate would have been much higher. In other words, RBI is subsidizing their cost of funds.

This is expected at reducing Current Account Gap. 

 

2. Special window for Oil Companies
 Oil Companies need not go to banks for their $ requirement for importing.

3. General guideleines for Banking Sector
bank branch expansion made a normal business decision for banks meeting certain standards


A depreciating rupee is good for exporters. Indian products will become competitive globally.

Indian companies also feel there is some kind of slowing down

 But what is in it for an average investor?

Hold on to your SIPs, even if that monthly sacrifices hurts you. Reduce expenses as far sa possible...reduce the number of outings, taking food at high priced restaurants and hotels,...yes fasten your seat belts..united we stand, divided we fall...could be a message for those contemplating a divorce!

Yougsters, take thhat job, even if it is not your dream job..first you have to stand on your two legs and be able to plan up to your dreams

During the WW years, it was competitive devluations that finally gave birth to  IMF and World Bank. Now what we see today is a similar situation imposed on India by the competitive fiscal measures of major economies.

Financial descipline by individuals can maintain social harmoney by the time Govt is capable to deal with external situations.


happy investing

Gold is melting..

Every asset has a price cycle; in the case of gold, it was not visible for a very long term and now it is got to show its moment of truth.

1. What spelled this reversal of trend? The fear of potential broad application of policy of  selling Gold of   Cyprus being imitated by countries like Spain, Italy and many more  is the main catalyst for the sell-off. The fear may or may not come true. But the signalling effect had been dramatic. While the U.S. economy is showing signs of economic vigour, the other developed economies - especially the Euro zone is in a situation of debt-overhang and is reporting dismal economic growth. The entire Euro zone economy is facing double-digit unemployment rate (of 12% in February 2013 as reported by Eurostat) and the manufacturing industry is under a recessionary phase and therefore the business confidence too is negative (at -0.86 in March 2013 as reported by European Commission).

2. Is it a trend? How long it could go??
Spot gold dropped as low as USD 1,384.69 an ounce before recovering slightly to USD 1,406 during Monday 15 April 2013 afternoon trading, still down nearly 5 percent. Gold is on course to record the biggest two-day fall since 1983.

3. Is there sufficient evidence? 
   The statistical evidences and fundamental factors indicate the downward spiraling  will be there for some time just like the upward trend that we have already seen.

4. Impact on Indian Markets

Since  gold imports contributes over 50% of the current account deficit in CY12,  a drop in gold prices should help lower India’s Current Account Deficit(CAD). This should in turn provide a significant boost to the risk perception surrounding the rupee.


This could signal  a drop in imported inflation which can pave the way for lower interest rates.

In India, more than  half of  household savings are in physical assets, mostly gold and real estate. A sustained bear market in gold may help move money to either more productive, economy-boosting investments or to plain consumption of other goods and services.

  With hardly  2-5% of India's household savings flowing into equity markets, a decline in prices of competing asset classes can result in asset allocation towards financial assets, especially equities, given falling bond yields.
Corrective phases would encourage smart investors to buy more gold, thereby leading to increase in demand. Despite import duty on gold hiked to 6.0% (in order to curb CAD), demand would not deter. In fact that has buoyed-up smuggling activity for 'tola' bars (or unnumbered bars) in the country

Conclusion

Whatever your risk appetite is, Gold should always form an integral part of your portfolio; while the debt and equity portion in your portfolio may change according to the changes in the broader market risk as well as your risk appetite and nearness of the goal for which you made your investments

HAPPY INVESTING

You may be interested in
1. Gold. Is there still steam?
2. Some Golden Moments again..
3. Did gold get enough?
4.Gold hold your breath

What is in the budget for MF investor?

Rajiv Gandhi Equity Savings Scheme (RGESS)

RGESS has been introduced for the current financial year; the scheme offers benefit to the first time investor in capital market for the investors with income less than Rs. 10 Lacs. However in the 2013-14 budget FM has proposed to liberalise the RGESS by increasing the limit from Rs. 10 Lacs to Rs. 12 Lacs with respect to the income and investments can also be done in the mutual fund scheme which are allowed under RGESS scheme. This will boost up more and more investments under this scheme and will benefit Mutual Fund Industry. The scheme allows maximum investment of Rs. 50 k and deduction limit of 50% of the invested amount i.e. the said scheme reduces the taxable income upto Rs. 25 K, thus benefitting investors across different tax slabs.

Reduction in Securities Transaction Tax (STT)

Reduction in Securities Transaction Tax is surely a booster for the mutual fund sector, as this will help to reduce the transaction cost. Reduction in transaction cost will help the schemes to perform better on the returns front and will benefit the investors as it will be passed on to the investors. Reduction in Securities Transaction Tax may also initiate additional investment from investors in order to earn higher return. In the previous budget government had reduced STT from 0.2% to 0.17% and in the current years budget the same has been reduced from 0.17% to 0.1%. 

Pension and Provident Funds can invest in ETF

Pension and provident funds can now invest in exchange traded funds; this will also benefit Mutual Fund Industry as these institutional investors have huge investment pool. This may also include New Pension Scheme (NPS). New Pension Scheme was been launched for non government segment. The scheme is open for anyone from 18 years to 60 years of age; investment in NPS is also eligible for tax deduction.  

DDT on Debt Mutual Funds hiked

Fund houses pay taxes on the dividend income distributed to investors. Though dividends are tax free in the hands of investors, fund houses deduct DDT from the distributable surplus.


Retail investors who choose the dividend option in debt mutual funds (MFs) would get lower post-tax returns on their investments. The Budget has hiked the dividend distribution tax (DDT) on debt mutual funds (MFs) from 12.5% to 25% (plus surcharge and cess) for individuals and HUFs. This would bring them on a par with liquid funds that pay 25% DDT

 But dividend would still be a better option for investors who fall under the higher tax slab (30% and more) compared to bank fixed deposits


MF portfolio is a part of the capital market; it reflects the fortunes of companies in its fold.


As an investor, you get affected @ commodities trading, lesser burden for Insurance for disabled, TDS on property, surcharge on super rich and service tax on luxury living

Budgets will continue to come and go; plan your needs thoughtfully, allocate and maintain separate investments for each need.

happy investing

Gold. Is there still steam?

In January 2013 Govt of India imposed 2% more import duty making it 6% from 4% on gold imports.

How precious is Gold viewed in the short term:

The US housing recovery is likely to accelerate throughout the year, China's data are topping the forecasts as the nation's economy shows signs of bottoming out, markets don't see any immediate concerns out of Europe and so the  investors' confidence is high.

There is no new financial crisis building up  in the major markets; most of the bad news is already reflected  in the price. Secondly, the recent erratic performance coupled with sluggish demand for safe haven has lessened investor’s interest in Gold. Not only that, after the prolonged bull run buyers have now become more price-sensitive and India is trying to reduce its imports of gold, which may have a long-term impact on international gold prices.

That does not mean everything is closed out for gold.  As a source of diversification it still makes sense to maintain some gold in your portfolio.


In 2013, WGC expects the demand to be in the 865-965 tonne range, an 11 per cent increase at the upper-end.

The long term trends available from WGC shows a positive picture for Gold. Key statistics from its first of the  report in the series include the following: In 2009, total Indian gold demand reached US$19 billion, or Rs974 billion, which accounts for 15% of the global gold market.
Over the past ten years, the value of gold demand in India has increased at an average rate of 13% per year, outpacing the country’s real GDP, inflation and population growth by 6%, 8% and 12% respectively.
The country currently has one of the highest saving rates in the world, estimated at around 30% of total income, of which 10% is already invested in gold.

The views in the short term and long term give divergent postures. Life is like that.one is the best judge when it comes to financial planning. consider all views; but take one's own investment decision.

happy investing

people who read this also read:
1. Some Golden Moments Again..

Rajiv Gandhi Equity Saving Scheme (RGESS)

 Rajiv Gandhi Equity Savings Scheme (RGESS) is an attempt by Govt to improve equity participation announced in Union Budget 2012-13. SEBI issued circular in this respect on Dec 06, 2012.

The scheme was notified by the Department of Revenue, Finance Ministry on November 23, 2012.

 Major points to be noted are:

Only first time investors : Who has not opened a demat account and has not made any transactions in the equity, or derivative segment as on the date of notification of the scheme i.e., November 23, 2012. Or
Who has opened a demat account as a first holder, but has not transacted in the equity or derivative segment till November 23, 2012.

Investors with taxable income of less than Rs 10 lakh can participate.

There is also one year blanket lock-in, and an overall lock-in of three years, so it is not liquid, 

The maximum investment allowed is Rs 50,000 and the investor gets a tax rebate that is 50% deduction of the amount invested,  is being made available in the Income-tax Act 1961 in terms of the provision contained in section 80CCG. That means one can have installment remittances or single sum according to his choice.

Tax saving can be made by taking an exposure to Rajiv Gandhi Equity Investment Scheme and thereby cutting down your tax payment by Rs. 2,500 to Rs. 5,000 in the year of investment.  

The scheme allows investments only in largecap type of stocks, CNX 100 etc It is a very huge filter and so the depositary participant is given the responsibility of checking it out. They will check it out from the pan number and they will also ensure lock-in through depositary participant as well

Stock exchanges have to furnish the list of RGESS eligible stocks/Exchange Traded Funds (ETFs)/Mutual Fund (MF) schemes on their website.

For RGESS eligible close-ended MF schemes, advice given by AMCs (Asset Management Companies) to the depository for extinguishment of units of close-ended schemes upon maturity of the scheme shall be considered as settled through depository mechanism and therefore RGESS compliant," the SEBI circular said


 Now the opportunity is available for more than 23 million Indians – out of a population of 1.2 billion – could be eligible targets. If they all invest the maximum, there could be a potential inflow of 116 trillion rupees – more than double the country’s gold assets!!!

happy investing!!