Saturday, 5 March 2016






March 2016  Volume 06  03
Really knowing our customers

Greetings from FundsIndia!

The  capital  market regulator   has   a favouriteplay thing that they pick up whenever they are bored and that’s the Know Your Customer (KYC) regulations. Every few months, a new addition or change crops up, putting burden on customers and service providers like FundsIndia.

However, it is anybody’s guess if the formal process that one goes through helps the regulator, the fund house, or a service provider to really understand customers.

At FundsIndia, we have taken a most meaningful step in this direction.

We have created an area in your FundsIndia account where you can record pertinent, useful information about yourself in the form of profile data.

There is no compulsion to do this, and you can fill it out as much or as little as they want to. However, the more comprehensive this data is, the better we can tailor our services and advice to your need.

I urge you to fill in your profile data as soon as possible to help us serve you better.

Happy Investing,





Srikanth Meenakshi

Co-Founder & COO

FundsIndia.com





Lessons from the budget
If you were sitting on the sidelines for the budget announcement, then you will now have one less excuse now to postpone investment. If you base your own actions on the Budget, then here is what you should know:

       The Budget prefers stability over fast-tracking growth. The Government’s focus on sticking to its fiscal deficit target is a clear indication that it has no intention of giving up on fiscal prudence to showcase economic growth.

       It prefers steady incremental changes and spending over sweeping changes or largesse in spending. You will not find one ‘star’ proposal or a big ‘highlight’ in the entire proposal. Whether it is the changes to corporate rate of tax or taxing foreign companies in the digital space, or nudging you to make more market-linked investments, the changes are incremental.

       It prefers to invest in segments that will not provide any immediate gratification but rather usher in changes and benefits over the long term. Given its fiscal prudence, the Budget obviously has the challenge of spending its resources in the most productive way and it chose rural and infrastructure spending rather than subsidies or other less productive channels.

The lessons from the above are simple. One, if economic growth and corporate earnings growth are doing to be steady and incremental in nature, so will your investment growth be. Do not expect swift wealth accretion. Two, you cannot wait for big bang changes in the market or the economy to start investing. Investing needs to be an ongoing, routine act (done through SIP). Your investments will automatically adjust to the changing market dynamics; at least mutual funds can be expected to do that as experts handle them. Three, you have to spend less to save more – postpone gratification - and also stay invested for the long term. If you can do it with sub-optimal returning products such as EPF or PPF, there is no reason why you cannot do it with a product that offers far superior returns, like mutual funds.

The last point, the budget has itself hinted to you, by asking you to be open to market-linked instruments and returns.

But there is one more lessons that markets just taught you – if you’d postponed your investments, waiting for the budget, you paid for it by not participating in the recent rally!

Vidya Bala

Head – Mutual Fund Research

FundsIndia.com







www.fundsindia.com







































































www.fundsindia.com

FundsIndia Views: What the Budget has for your investments

















If you expected Budget 2016 to put the Indian economy on a fast track growth path, you might

















be disappointed.The Union Budget has clearly prioritised fiscal prudence over aggressive growth

















targets. Moderate expenditure growth, with key investments in pressing areas such as agriculture,

















infrastructure, and employment generation, as well as providing for banking recapitalisation and

















the Seventh Pay Commission (partly) were finely balanced without compromising on the fiscal



Vidya Bala




target of 3.5 per cent in FY-17.




The table below indicates how far we have come in
productive spending as a share of the GDP is mildly up

containing our deficit.




























at 2.75 per cent of FY-17, as against 2.73 per cent in



Central Government Fiscal Deficit (as % of GDP)




FY-16, according to reports.

7
















6.5

























Also, it is noteworthy that the subsidy bill of  the















6



5.7



















government is down, although it had to provide for pay

6
















































































5  4.3
3.9
4











4.8



4.8
4.6
4.1
3.9







commission and pension payouts. That means money is























4








3.3
2.5























3.5
3


going into productive spending in the economy.

3










































2












































What’s in it for the markets?













































1













































0












































Equity: Simply put, the stock markets pretty much get













































FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15RE
FY16BE
FY17BE
FY18BE




nothing. You can only lead a horse to the water, and the


Government has shown the way. Companies have to

Why is fiscal prudence that important? We are already at

pretty much take cues from government spending, take

a stage of low oil prices and a consequent fall in current
advantage of low oil and commodity prices, as well as

account deficit, along with low inflation. That sets the
make the best of heavy rural spending by the government

path for lower interest rate, which is the need of the hour
and pick themselves up. While there are no major positives

to boost corporate spending activity.Any extravagance, at
for Corporate India as a whole, there are pockets of

this stage, could affect the sweet spot in inflation and
benefits that companies can make the best of. We

deficit, thereby upsetting the case for lower rates.







highlight some of them here:

By sticking to fiscal targets, the government has provided
- In the auto space, while taxes at the consumption end in

the right signals for the Central Bank to act. It has
the form of infrastructure cess, and tax collection at

achieved this by not entirely taking its foot off the pedal
source for cars over Rs. 10 lakh can impact 4-wheeler

when it comes to key spending (infrastructure, rural
sales, the large rural outlay, as well as key measures such as

development). It thus sets the tone for private spending by
opening up the road transport sector in the passenger

showing the way, but not indulging too much.







vehicle space (amendment to Motor Vehicles Act) can

Also,  it  is  noteworthy  that  the  spending  by  the
provide a fillip to 2-wheeler, tractor as well as commercial

government, under these circumstances, is not piddly as it
vehicle sales. Hence, we would view this as a positive for

appears to be, if

one merely looks at the 3.9 per cent
this sector.

increase in capital expenditure by the government.




- Even as rural consumption has been slackening over the

Experts from research firms such as CRISIL look at what

past year, increased rural spending by way of Mahatma

is termed as Productive Expenditure – that is the sum of
Gandhi National Rural Employment Guarantee Act

capital expenditure and a part of revenue expenditure that
(MNREGA) can provide some support to sales of

is used to create capital assets in the economy. Such
consumer goods (FMCG).















































“It is a pragmatic budget, particularly if you look at the fiscal consolidation road map.”













- S.S. Mundra, Deputy Governor, Reserve Bank of India






















































www.fundsindia.com

- While the general thought has been that the banking
Your debt portfolio: Depending on how the RBI
recapitalisation amount of Rs. 25,000 crore is inadequate,
interprets the fiscal situation, as well as inflation, and a
we believe this space has to be seen from the point of
rate cut may trigger a rally. Hence, while a duration-driven
structural changes being ushered in. A Bank Board Bureau
rally may happen, we believe a steady corporate growth
to improve the governance of public sectors banks and
story and improving credit situation would be a more
providing a road map for their consolidation is a key
dependable story, and therefore, income accrual funds
development. Also, empowering Asset Reconstruction
could be good bets for the long term.
Companies by way of amendment to respective laws and
A combination of duration and income accrual funds
strengthening debt recovery tribunals are also positives,
is, therefore, the way forward for a 2-3 year debt
when viewed from a long-term perspective.
portfolio.
- The biggest positive comes from the massive outlay of
What’s with the way you invest?
Rs. 2.21 lakh crore for infrastructure, out of which Rs.
55,000 crore is budgeted for roads (with additional Rs.
This Budget discussion would not be complete without a
15,000 crore to be raised through NHAI bonds). This
mention on why your investments in products such as
clearly is a boost for companies in construction, as well as
mutual funds gain more importance now than ever.
allied engineering and capital goods companies. Besides, a
If you are already heavily into investing in market-linked
Resolution  Disputes  Bill  for  PPP  (Public  Private
instruments such as mutual funds, you may not be too
Partnership) projects and new guidelines to renegotiate
worried by this. But for those largely depending on EPFs
agreements will be issued. This can provide a fresh lease
for their life savings, the proposal of partial taxation of
of life to stalled/stressed projects.
your EPF may have sounded like a death knell. (Click here
Your equity portfolio: A good number of mutual funds
to read our blog post for our latest position on this)
have been taking measured exposure to cyclical sectors
While we await clarity on the exact taxation (other than
such as construction and automobile, and can benefit
the fact that 40 per cent of the lump sum withdrawn
from the above positives.
would not be taxed) on EPF, we would urge you to take
Westill believe that funds that took contrarian views to go
the spate of signals from the Government and the tax
authorities on this. (Click here to read our blog post for
overweight on the banking sector could benefit the most
our latest position on how the Budget impacts your taxes)
as a combination of low valuations of many stocks in this
One, provident fund rates have declined from double
space, together with a rate cut event, could trigger the
prices of these stocks. Near term pain of fast tracking
digit rates in the 1990s, and are now, mostly in the range
NPAs in their books has only ensured cleaning up of
of 8-9 percent.
books sooner to make way for growth.
Two, more recently, the rates on these small savings
If you wish to average your equity portfolios, you
schemes (as well as many other such schemes) have been
have no more uncertainties. Start now.
made more dynamic, with change in interest rates every
Debt: Fiscal prudence by sticking to the deficit target
quarter pegged closely to the gilt rates. That means they
will hardly remain fixed in a given year, and can fall in line
received a big thumbs-up in the debt market as yields fell,
with rate falls.
causing bond prices to rally. This could signal that markets
are readying themselves for a rate cut. A number of
Three, in the latest budget, to provide parity between
measures to deepen the corporate bond market, including
NPS and EPF, EPF is also proposed to be taxed partly.
allowing FPIs to invest in unlisted securities, and allowing
All  these  hint  at  just  one  message:  move  to
large borrowers to tap the market rather than go to banks
market-linked products. Of course, while the EPF-NPS
could also mean that the debt market’s demand-supply
transition may happen once companies provide the
scenario improves, thus reducing price volatility.
option, for you as an investor, it is important to also look
“Proposals for agricultural reforms, rural electrification, social sector reforms and allowing ships to remain open seven days a week will add to economic growth.”
- Adi Godrej, Chairman, Godrej Group

www.fundsindia.com



beyond these options into more efficient market-linked options such as mutual funds to deliver tax efficient, superior returns.

For instance, in the same tax domain, an ELSS fund can be effectively used to save tax, with no capital gains tax, thereby helping you build a far superior retirement kitty that can be later moved to safer avenues, closer to retirement.

The government is favouring savings in market-linked instruments. While you do that, make sure you pick efficient and superior wealth-building market-linked products.

Talk to your advisor if you wish to know how best you can save outside of the traditional provident fund options to ensure you are left with more money on the table.
Vidya Bala

Head – Mutual Fund Research

FundsIndia.com

Equity Performance Snapshot

Index
1 Year
5 Years
10 Years
Nifty 50
-21.5
5.5
8.5
S&P BSE Sensex
-21.6
5.2
8.3
Nifty Midcap 100
-11.9
9.4
10.1
Nifty Smallcap 100
-23.3
5.4
6.4
Nifty 100
-20.2
6.2
8.9
Nifty 500
-19.4
6.5
8.2
Nifty Bank
-29.1
6.0
11.8
Nifty Energy
-11.8
-2.5
4.5
Nifty FMCG
-13.1
16.0
13.3
Nifty Infrastructure
-31.6
-4.3
-0.3
Nifty IT
-18.8
9.0
10.0
Returns (in per cent as of
February 29, 2016) for less than one year
is on an absolute basis, and for more than one year on a compounded annual basis








































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Bhavana Acharya

Market linked returns from small savings schemes too
In February, the Government dropped something of a bombshell, at least for investors in small savings schemes. The manner in which the interest rate is fixed will change from April 1st onwards, and this has a few implications. Small savings schemes are many – time deposits and savings account of the post office, monthly income schemes of the post office, national savings certificates, provident fund, senior citizens scheme, the Sukanya Samriddhi scheme, Kisan Vikas Patra. Each instrument has a different interest rate.


This interest rate is determined by a defined margin (or spread) over the government security (G-Sec) with a similar maturity period.

Short term instruments

The purpose of the change in short-term instruments is to align rates with those of banks, bring about uniformity in interest rates across debt instruments, and finally, reduce the interest burden of the government.

The change: Up until now, post office term deposits of 1, 2, and 3 year maturities, the 5-year recurring deposit, and the Kisan Vikas Patra pegged their interest rate at 25 basis points above the relevant G-Sec rate. This 25 basis point spread will now be removed. Second, this interest rate will be adjusted every quarter, instead of the annual peg seen until now. The rates will be decided on the 15th of March, June, September, and December based on the preceding three months’ rates.

The implication: The direct result of the change right now is lower interest rates, rendering them far less attractive. Rates paid on the post office term deposits, for instance, have held above 8 per cent from April 2012 onwards and are currently 8.4 per cent. This may come down as rates fall. Next, the quarterly revision in interest rates will make returns fluctuate more than they are now. Small savings schemes will now see fluctuations similar to bank deposits even in the short term.

Long term instruments

The goal of these instruments is to encourage investors to stay put for years together, and most also have the added benefit of qualifying for deductions under Section 80 C of the Income Tax Act.

The change: The spreads in these instruments will continue to remain the same. To this end, the Senior Citizen Savings scheme, a tailor-made product for retirees, will retain its 100 basis point spread over the G-Sec rate. Also holding steady is the Sukanya Samriddhi Yojna’s 75 basis point spread. The Monthly Income Scheme, the 5-year term deposit, 5-year National Savings Certificate, and the Public Provident Fund all have a 25 basis point spread and will continue to do so. However, these rates will be adjusted quarterly as well. A further change will take place in the NSC, where the interest will compound only annually instead of the half-yearly it is currently.

The implication: For the NSC, the annual compounding frequency will reduce its yield. For every Rs. 1,000 invested at the present rate of 8.5 per cent, the interest accrued will reduce by Rs. 12.56. For all other instruments, interest rates will gyrate much more than they have hitherto.

In fact the biggest impact for investors would come from the PPF, where rates will become more dynamic. In this falling interest rate scenario, rates will move southward almost every quarter.

The new interest rates on the small savings schemes will be announced in March, and will thereafter come in every quarter. As the link between market rate and the rate paid by various instruments deepens, debt will lose much of its rock-solid predictability. That makes a case for investors to diversify into other regulated, market-linked but superior returning products such as mutual funds if they do not wish to settle for lower returns.

Bhavana Acharya

Analyst - Mutual Fund Research

FundsIndia.com



“The Budget has exploited its potential only in parts. Sectors like power, renewable energy, water and effluent treatment did not receive much-needed attention.”
- R. Shankar Raman, CFO, Larsen & Toubro


www.fundsindia.com

Q & A

Q:  I have never understood how RBI rate cuts or hikes impact the market. Could you please elaborate?

A:  A repo rate cut or a hike by the RBI signals that banks will follow a similar path. This is because a repo rate cut, for example, means that the RBI makes funding available to banks at a lower rate. That also signals that banks can lend to their customers at a lower rate. The inverse is true in case of a rate hike scenario.

In the equity market, a rate cut suggests that more credit will be made available to corporates and individuals. More money at lower interest rates can spur private investment by companies and also consumption spending by individuals. This is done when economic growth is slackening, and capital investment activity in the economy is also low. Higher investment and spending activity boosts corporate earnings growth, which gets reflected in the stock price of companies. Thus,markets usually welcome a rate cut and are positive on stocks and sectors that gain from lower interest rates. Similarly, in a high inflation, high growth scenario, the RBI may hike rates to curb excess money circulation. Such a scenario need not always be bad for the economy if the rate hikes do not significantly hurt corporate credit.

In the debt market, a rate cut would mean that debt instruments would have to readjust their yield to the new lower rates. As yields settle at lower levels, the prices increase since the instruments (issued earlier) with higher coupon rates will command a premium (as they pay out higher interest). Hence, in a falling rate scenario debt instruments, especially those with longer maturity, see an appreciation in their price as yields fall.

Vidya Bala

Head – Mutual Fund Research

FundsIndia.com





































www.fundsindia.com

Technical View                                                                                                                                                                                Nifty

The Nifty has been making lower tops and bottoms formations on the monthly chart for the past 5 months. It has failed to hold the important level of 7,240. The latest 21-day Simple Moving Average (SMA) is at 7,288. Immediate resistance is at 7,550 and 7,700, while support is at 7,040 and 6,870. The short term trend is negative. The index needs to clear the resistance level of 7,250 to confirm that this trend has turned bullish. Failure to break above the resistance levels will result in short term volatility. A close below 7,040 will lead to further weakness to test 6,870 and 6,650.


HDFC Bank

HDFC Bank has been trading in a tight band of Rs. 950 and Rs. 1,120. Currently,the stock is trading near the lower band support of Rs. 950. There is a strong possibility of it resuming its upward rally from the current price. We recommend a buy for a target of Rs. 1,120. The stock can be accumulated on declines. The latest 100-week SMA is at Rs. 967. The stop loss is placed at Rs. 850.

















This column is targeted at investors who are registered customers of FundsIndia for trading and investing in equity as well as prospective investors who wish to open an equity account with FundsIndia.

Reliance Industries

The stock has seen a massive fall from Rs. 1,080 to Rs. 890 in the past month. It has taken strong support around the 200-week SMA at Rs. 890. The current correction provides a good opportunity to accumulate the stock at lower prices. Medium term target is Rs. 1,090. Major support is at Rs. 830, and resistance is placed at Rs. 1,040. The stock can be accumulated on declines. We recommend buying Reliance Industries, keeping a stop loss of Rs. 825.














Perumal Raja

Technical Analyst (Equity Research Desk)

FundsIndia.com


Disclaimer: Mutual fund investments are subject to market risks. Please read the scheme information and other related documents before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs. Wealth India Financial Services Pvt. Ltd. (ARN code 69583) makes no warranties or representations, express or implied, on products offered through the platform. It accepts no liability for any damages or losses, however caused, in connection with the use of, or reliance on its products or related services. The terms and conditions of the website are applicable.

Think FundsIndia, a monthly publication of Wealth India Financial Services Pvt. Ltd., is for information purposes only. Think FundsIndia
is not, and should not, be construed as a prospectus, scheme information document, offer document or recommendation. Information in
this document has been obtained from sources that are credible and reliable in the opinion of the Editor.

Publisher: Wealth India Financial Services Private Ltd.
Editor: Srikanth Meenakshi
"With Digital India, a new government, India has a chance to not only leapfrog its competitors, but to move from being a slow follower to become a fast innovative leader."
- John Chambers, Executive Chariman, Cisco Systems


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FundsIndia Select Funds

Tax Savings Funds

These are equity-oriented funds with a lock-in period of three years, investment in which qualifies for deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act in the year of investment.

Moderate Risk
High Risk
BNP Paribas Long Term
Axis Long-Term Equity
Equity
ICICI Pru Long Term
Franklin India Tax Shield
Equity
IDFC Tax Advantage Fund
Reliance Tax Saver
Religare Invesco Tax

Plan(G)

What is FundsIndia Select Funds

This is a listing of mutual funds that we think are most investment worthy for a regular investor. We review this list on a quarterly basis. Do note, however, that past performance is not a guarantee of future results. Please consider your specific investment requirements before designing a portfolio that suits your needs.

Please click here for a complete listing of our preferred funds.

Investment Quiz
1   Which Indian state has become the first ever state to e- auction limestone blocks?

2      India’s largest coal washery will be set up in which state?

3      Who has been named vice-chairman of International Chamber of Commerce (ICC) Commission on Corporate Responsibility and Anti-corruption?
4      Which agreement did the Reserve Bank of India (RBI) and UAE Central Bank recently enter into?

5      India’s first-ever Aviation Park will come up in which India state?

Answers may be sent to quiz@fundsindia.com.

Answers for February 2016 Investment Quiz:

1. United Nations (UN) 2. Mumbai Central station 3. Bahrain 4. Geneva 5. 3 years

The winner of the February 2016 Investment Quiz is Kushal Ramu Gowda































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