The World This Week - 2nd April to 6th April, 2012

The financial world keeps changing every now and then. Read the latest happenings around the globe and become a wise wealth planner! 

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Expect 20% Sensex to return in 2012

Based on all four key factors that drive the equity market -- valuation, liquidity, sentiments and fundamentals -- we expect the Sensex to touch 21,000 in 2012, i.e. 20 per cent returns from the current levels.
Moreover, we expect yields on mid-caps to be higher than the Sensex return. Indian equities are currently undervalued vs their own past levels and current peer levels. Since 2007, the Sensex has reached 16,000 for the sixth consecutive year. Meanwhile, the Sensex earnings have grown 30 per cent and the Indian corporate sector has reduced leverage.


Currently, at the 17,000-17,500 range, with return on equity of Rs 18 per cent, the Sensex trades at 13x FY13E earnings, well below the historical average of 15x. Despite the perception to the contrary, Indian equity is cheaper than most Asian peers on a sector-adjusted basis.  For example, although India is a domestic consumption-driven story, Indian consumer companies are at a discount vs. China, Indonesia or Taiwan. The same is true for information technology companies, where India is the global outsourcing leader.

Despite having better capitalisation and consistent growth records, Indian financials do not command a premium vs Indonesia or Taiwan. We expect better liquidity conditions in 2012 vs 2011.
The European Central Bank is on an aggressive quantitative easing mode. Going by the economic condition, outlook and Central Bank stance, both Japan and US are likely to follow suit. To accommodate the large government borrowing and slowing bank deposit growth, we expect the RBI to infuse at least Rs 3,00,000 crore (Rs 3,000 billion) in liquidity during FY13 through cuts in the cash reserve ratio and open market operations, substantially reducing the average banking sector liquidity shortage of Rs 1,40,000 crore (Rs 1,400 billion) in Q4 FY12.

The current gloomy outlook on macro issues -- growth, inflation, interest rate, currency, government finance and public policy -- are depressing market sentiments. Even a small improvement would lead to a strong bounce back, as most negative events are currently priced-in. We expect the outlook on the Indian economy to improve in the latter part of 2012. Investment growth, the key driver of the Indian economy and thereby the equity market during 2004-07, has remained lacklustre since FY09, particularly in the last four quarters.

Going by past trends, we expect recovery in India's capex cycle to start in 2012, led initially by replacement rather than fresh capex. The process is likely to improve the outlook on the Indian economy and companies, particularly those linked to the investment theme.

Investing in 2012 by Mr. Swapnil Pawar, CIO of Karvy Private Wealth

Investment avenues for 2012 can be recommended based on careful assessment of various scenarios that may pan out. The emphasis is more on action rather than on communicating  a certain "outlook". I believe the investors are often flooded with too much "outlook" and too little "actionable input". Here is an attempt to focus on the matter.

I have used what is typically referred to as scenario-building exercise. This is a powerful technique implemented by military planners, oil explorers and geo-political experts. Simply put, according to scenario analysis, the final shape of the world is a function of a few key drivers. These drivers affect the intermediate variables, which, in turn, shape the future. The important factor to consider here is the parallel impact of a given driver on different variables. Thereafter, we can easily come down to a fairly small list of candidate scenarios of how the world would shape up.

Using scenario analysis, we are trying to overcome 2 common problems typically faced in our endeavor of investment advice too specific and inherently speculative prediction on one hand, and too general and anything-can-happen sort of pseudo-prediction on the other. Real life is hard to predict. The attempt , therefore, is to forecast as few different alternative futures as possible, and design an investment strategy in that light. 

Don't rush to invest in debt instruments

The rates of return offered on small savings schemes - those of the post office, Public Provident Fund and National Savings Certificate - have been increased by up to 50 basis points (bps) from April 1.

Beside good rates, the returns are tax-free. However, there is one problem with these instruments - liquidity. Hemant Rustagi, chief executive officer of Wiseinvest Advisors, says the new rates will be good news if introduced, especially in the case of PPF.

PPF gives returns of 8.65 per cent and is tax-free. Not many debt products give such returns. It is safe and the returns are assured. These (higher rates) will make them even more attractive," he says.

However, if the rates are raised, it does not warrant taking out money from equities and parking it in a PPF.

"Over the long term, equities will give you better returns than a PPF and are tax-free, as after a year of investing, there are no long-term capital gains levied," he said. The case for an NSC or a post office monthly income scheme is weaker. Besides being illiquid, these instruments provide lesser post-tax returns. An increase of 50 bps does not make these instruments any more or less attractive.

An NSC matures in five years; you cannot withdraw mid-way, making the instrument illiquid. In December, the maturity period was reduced by a year and the interest rate raised by 0.4 per cent, to 8.6 per cent.

Second, as of now, MIS and NSC provide pre-tax returns of 8.2 per cent and 8.4 per cent, respectively. However, there are banks that offer rates of between nine and 10 per cent for the same tenured fixed deposits. The State Bank of India, for example, offers its 10-year deposits at 9.25 per cent.

While NSC, MIS and bank Fds are not tax-free, post-tax returns of bank FDs are higher than those of MIS and NSC.

These are taxed in line with your applicable income slab. While MIS and NSC are typically aimed at senior citizens, there are better options, says Suresh Sadagopan, certified financial planner.

"They have a senior citizen savings scheme, which offers a higher rate of return at nine per cent and the limit is also higher at Rs 15 lakh instead of Rs 1 lakh for the NSC or MIS," he says.

He adds these schemes are used by senior citizens who lack a source of regular income, but there are options, such as IDBI Bank's monthly or quarterly income plans.

There are also bank FD especially for senior citizens, with higher interest rates. Another issue with MIS is that it pays eight per cent interest yearly (payable every month) and if you stay invested till maturity, you would get a five per cent bonus.

But, with the rise in interest rates, the bonus has been done away with. 

Plan your taxes the smart way!

The question we must ask ourselves is whether we are paying the right amount of taxes to national government. Are we really planning our taxes? If so, how are we going about it? are we planning it the smart way? Given rapidly changing tax laws, abolition of fringe benefit tax (FBT), new prequisites valuation rules, and the new Direct Tax Code (DTC) bill in the pipeline, we need to be really tactful and plan our taxes the smart way to meet the changing environment.

Every month tax is deducted from your salary. Now, unless you revise the pay structure to one which is more tax-friendly, you will continue to carry a lighter wallet. So, is there a way to offset this additional burden? Certainly. All you need to do is plan your taxes, claim your tax deductions and submit all your investment proofs to your employer. This will help you avoid undue tax deduction over the next 3 months.

Overall, planning is the key! Learn the facts about tax laws, plan your money spends and save your tax.

Karvy Private Wealth in the News!

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7 simple ways to avoid credit card money theft

1. Keep your credit cards safe.
Keep your credit cards in a purse or wallet close to your body where it can't easily be snatched away. Carry only the one or two credit and debit cards you'll be using that day. Leave all your other credit cards at home. Thieves can take pictures of your credit card with a camera or cell phone, so don't leave your credit card exposed any longer than necessary.

2. Shred anything with your credit card number on it.
Rather than toss your credit card billing statements directly into the trash, shred them to keep dumpster divers from getting their hands on your credit card number. The same thing applies to old credit cards that have expired or been cancelled. You might even put the shredded pieces in different trash bags to thwart clever thieves who can put shredded pages back together.

3. Don't sign blank credit card receipts.
To avoid credit card fraud, always verify the amount on your credit card receipt before signing it. If you get a credit card receipt that has blank spaces in it, write $0 in those spaces or draw through them before putting your signature on the card.

4. Avoid giving out your credit card information.
Only give out your credit card number or other sensitive information on calls you initiate to customer service using the number on the back of your credit card. Credit card thieves have been known to pose as credit card issuers and other businesses to trick you into giving out your credit card number.

5. Be safe with your credit card online.
Don't click on email links from anyone pretending to be your bank, credit card company, or other business who uses your personal information, even if the email looks legitimate. To be sure a website is secure, look for a lock in the lower right corner of your internet browser.

6. Report lost or stolen credit cards immediately.
The sooner you report a missing credit card the less likely it is that you'll have to pay for any fraudulent charges made on your credit card. Write down your credit card companies' customer service number now so you'll have it if your credit card is ever missing.

7. Review your billing statements each month.
Unauthorized charges on your credit card are the first indicator of credit card fraud. If you notice a charge you didn't make, no matter how small, report the charge to your credit card issuer immediately.


Source: www.credit.about.com
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Gold and silver touched all-time highs in 2011

Continuing their record-breaking spree, gold and silver galloped to all-time highs in 2011 on strong demand for precious metals considered as a 'safe-haven investment' in times of economic turmoil and rising inflation.

Gold (99.5 per cent purity) crossed the Rs 29,000 per 10 grams-level to a historic high of Rs 29,155 per 10 grams on December 8, 2011, on good local demand in view of the marriage season coupled with investment buying due to weak equity markets. Pure gold (99.9 per cent purity) also logged a fresh peak of Rs 29,280 per 10 grams during the year.

Silver (.999 fineness) prices hit an all-time high of Rs 75,020 per kilogram on April 25, 2011, on heavy speculative and investment-driven buying in line with global markets, where the metal rose to a fresh 31-year high. The metal witnessed a global rally amid speculation of a supply shortage. Furthermore, successful launching of E-silver by the National Spot Exchange Ltd sharply boosted the speculative nature of the metal.

The domestic market witnessed relentless buying in precious metals due to global volatility in view of escalating geo-political tensions across West Asia, the subsequent impact on crude prices, sustained weakness in world equities, higher inflation and concerns over global economic growth. In May, global markets witnessed a free-fall in prices of the precious metals as speculators dumped their long positions after metal exchanges hiked the margin requirement several times.

Silver ready (.999 fineness) was trading at Rs 52,285 per kg on December 27, nearly 11 per cent higher vis-a-vis last year's close of Rs 47,030.00 per kg. Standard gold (99.5 per cent purity) also flared up by about 34 per cent to Rs 27,500 per 10 grams on December 27, 2011, from Rs 20,585 per 10 grams on December 31, 2010. Pure gold (99.9 fineness) was quoted at Rs 27,630 per 10 grams on December 27, 2011, as against Rs 20,680.00 per 10 grams at the end of last year.


Source: www.rediff.com
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Karvy Private Wealth Case Study- Corporate Professional

Case study established professional

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The 5 travel destinations to visit in 2012

The good folks at Lonely Planet -- that definitive travel book and magazine -- have drawn up a list of cities to go to in 2012. While some cities are in the news for sporting events, others have made it to the list for a variety of other reasons. Check out which is that one city you should be seen in next year.

1 Locating along the northern coast of Australia, Darwin is a charming town with a population of around 110,000 people from across 50 nations who have made the city their home.
Multi-cultural influences are reflected in the day-to-day life of the people here and the Asian influence is seen not just in the food but also the local music.
Australian National Trust has named Darwin the 'multicultural icon of national significance'.
If it's relaxed lifestyle and great tropical weather you're looking for, Darwin is the place to go to.

2. This one's for the Americophile!
Everyone who's anyone in the sporting world -- at least the one in the US -- will be heading to Orlando, which is all set to host the 61st NBA All-Star Weekend on February 25 and 26, 2012.
Visit the Walt Disney World at Lake Buena Vista or the other theme parks and museums including Universal Orlando Resort, Sea World Adventure Park or the International Trolley and Train Museum among others.

3. Hong Kong isn't called Asia's World City for no reason. The Special Administrative Region (or SAR) of the People's Republic of China has a lot to offer beyond its tall concrete buildings and traffic-clogged streets.
Hong Kong has a lot of breathtaking trekking trails, a climate that is just right and country and marine parks that will simply blow your mind.
Hike, camp, fish or bike or go shopping or restaurant and art gallery hopping and soak in the multi-cultural melting pot called Hong Kong as it takes cautious steps towards full democracy this year.

4. Santiago de Chile offers you a wide, range of restaurants and bars as well as a lively nightlife.
With the opening of the Gran Torre Santiago or the Great Santiago Tower -- the tallest building in South America, Santiago has made its presence felt in the continent.
Apart from being a base for to visit surrounding areas, entertainment options in and around Santiago include trekking to the nearby Andes in summer or skiing down its slopes in the winters.

5. Said to be the city where 'Portugal was born', Guimaraes was named by the New York Times as one of the places to visit in 2011.
The next year though is special for this historical city as it has been named as the European Capital of Culture 2012.
Guimaraes is also said to be the first city of Portugal and boasts og a lovely castle and a place that date back to the birth of the country itself.
Understandably Guimaraes has a great cultural life with numerous museums, monuments and art galleries to visit. Visit Guimaraes -- sounds like great fun!


Source: www.rediff.com
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Downturn To Hit Dividend Payout?

Less firms declared divided this year, and with a lower payout ratio, even as earnings come under strain.

The aggregate dividend payout by corporate India may be lower in the current financial year (2011-12), compared to 2010-11.
Only 75 companies had declared an interim dividend in the first half of the current financial year, as compared to 107 in 2010-11.

Moreover, the payout by these companies declined to 32 per cent of net profit, as compared to 40 per cent at the same time last year.

And, a 27 % decline in the second quarter of 2011-12 indicates earnings for the third and fourth quarter may be worse.

The study by the Business Standard Research Bureau estimates the total dividend payout at Rs 7,285 crore (Rs 72.85 billion) by 75 companies in the first six months, compared to Rs 7,290 crore (Rs 72.90 billion) by 107 companies in the corresponding period of last year.

Though the aggregate payout remains almost unchanged, the payout ratio has dropped to 32 per cent from 40 per cent in the previous year.

The payout ratio dropped, as noted earlier, despite a 22.3 per cent rise in net profit of the 75 dividend-paying companies in the first half, compared to a 12.3 per cent rise in net profit of the 107 companies doing so in the same period last year.

It is usually when companies earn handsome profits that they reward shareholders with dividends. If one goes by the huge losses of Rs 37,151 crore (Rs 371.51 billion) by 562 companies in the first two quarters, the corporate payout will be significantly lower this year.

Already, domestic and foreign brokerages have downgraded Sensex earnings by a little over 10 per cent for both 2011-12 and 2012-13 due to growth concerns, a depreciating currency and interest rates.

Reflecting the downturn in investment climate and lower confidence, foreign institutional investor investment has come down to a trickle.

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Source: www.rediff.com/slideshare

New Petrol Price – Much of a Pain?

About 38 %  or Rs 26.22 -- in the petrol price of Rs 68.64 a litre in Delhi (in many other Indian cities the price of petrol is much higher) is because of central and state government taxes.

State-owned oil firms had last week hiked petrol price by Rs 1.80 a litre, the fifth increase this year, as oil imports became costlier due to fall in rupee value.

The new rate is based on a basic price of petrol, without including any taxes, refining cost or margin, of Rs 41.38 per litre, oil company officials said.

The retail selling price is calculated by adding customs duty, central excise rates and VAT to the basic price which is nothing by the average of international oil rate.

On Rs 41.38 a litre base price, a customs duty of 2.5 per cent or Rs 1.04 per litre is levied.
Beyond this, the central government levies Rs 6.35 per litre basic Cenvat duty, Rs 6 per litre special additional excise duty and Rs 2 per litre additional excise duty towards highway cess.

The excise duty, after including education cess at the rate of 3% totals up to Rs 14.78 per litre.
However, VAT, which in Delhi is at 20 per cent, rises with every increase. Earlier, VAT on petrol was Rs 10.62 per litre, but after the hike, it totals to Rs 11.44 a litre.

In the case of diesel, the total taxes account for only Rs 7.66 of the retail price of Rs 41.29 in Delhi. The taxes include Rs 0.76 in customs duty, Rs 2.06 in excise duty and Rs 4.84 state VAT.
There is no central excise duty on diesel apart from the Rs 2 per litre cess for highway construction. Custom duty is 2.5 per cent.

State-run Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum are losing Rs 333 crore (Rs 3.33 billion) per day on selling diesel, LPG and kerosene below cost, officials said.

Petrol prices have risen by 33 per cent since they were freed from government control in June last year. The price of petrol in Delhi was Rs 51.43 a litre when the government decontrolled the fuel on June 26, 2010. Today, it costs Rs 63.70 a litre.

Source – http://www.rediff.com/business/slide-show
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Have You Written Your Will Yet?

When do you think should an individual write a will? People do not write the 'Will' or plan to write the will after attaining the age of 50/60 years.

80% people depart for heavenly abode without writing their will resulting in various avoidable complications hardship for their successors, few of which are narrated here below:

1. Distribution of assets:  In absence of Will, the assets cannot be distributed as per the choice of individual as it governs by the provisions of Personal Law/ Indian Succession Act/Hindu Succession Act/ Muslim Personal Law.

2. Exhaustive legal process:   Obtaining the Succession Certificate/ Execution of Will consume the time from 6 to 12 months.

3. Expensive:  Apart from the time, there is expenses incurred for legal process viz. 8 to 10% Court Fee, advocate fee and other incidental expenses.

4. Disruption in family:  In absence of specific Will, there is instances sourness amongst the family members.

5. Deprivation from assets:  Sometimes the successor is not aware with the details/ whereabouts of the assets and deprived from his right.

6. Tax planning:  In absence of Will the beneficiary cannot plan out their Tax liability or may not avail the tax concessions available to them.

Most of the individuals do not opt for making the Will just because they do not possess many assets or under the impression that they have already made the nomination.  No doubt the nomination is a great help to successors but the Nominee can hold the assets only in the capacity of trustee.  In such a case the nominee has to pass the assets to its successors.

And so it will be prudent to write the Will in addition to nomination.You have all the rights and privileges over your assets during your life time even after you have written your Will.  In other words the contents of will are effective only after your death and your assets are safe during your life time.

You can write your Will, provided you have attained the age of 18 and mentally sound in the eyes of Law.

Source: http://www.moneycontrol.com/news
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The World This Week - Sept12 - Sept16'2011

The World This Week - Sept12 - Sept16'2011

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Do You Know Recession is Occuring Soon? - And is Suspected to be Worse than the Last Time!

The world is going to go under a change and is going to face a recession soon.

A renowned global investor and author  believes the BSE Sensex may not go down to the 8,000 levels, but it would come down from the current levels.

About six to eight months earlier, many economists were saying a dollar crisis may only be seen by 2012 or 2013. Is the time shortening, in the light of renewed concerns over the US and EU economies?

We never really had a recovery in the Western world. The stock markets went up because of the money printing and support in 2009.

Do you expect a total collapse or a gradual decline?

I do not think it will happen overnight but I think, over time, the value of paper money will fall in a low interest and high inflationary scenario.

Has QE3 (the third round of quantitative easing, in the US) started and what do you expect from it?

This time, I think they may not make an official announcement. But some kind of a silent QE3 is already underway, considering that M1 growth (cash and near-cash deposits) has accelerated to the fastest expansion in 35 years.

I have no idea what the Keynesian interventionists, led by Bernanke, Krugman & Co will come up with next, except that they will further pursue their erroneous economic policies. The only question is how far they will move and what the impact might be on asset markets.

What does this mean for the various asset classes, especially on commodity prices?

I think cash and bonds are not very desirable. Equity and precious metals look okay. However, there will be more volatility.

The prices of anything, whether commodity or stocks, depend on many factors.

As far as commodities are concerned, I think the global economy is slowing significantly and the demand for industrial commodities will not grow that fast.

Can Indian markets remain insulated from what could happen in the Western world?

Indian and global markets are correlated. If the global markets slow down, the Indian markets, too, would slow down.

What is your asset allocation at this point?

I have 25 per cent in real estate and real estate-related equities here in Asia, 25 per cent in gold, 25 per cent in stocks and 25 per cent in cash.

Is it possible for Indian markets to drift lower, below 2008-09 levels?

I think the Indian markets will not go lower to those 2008 levels, but would go lower from the current levels to, may be, 12,000-15,000 levels.

From their low in 2009, the Indian markets till recently rose to 21,000, which is almost 100 per cent returns. I do not call this a bear market rally, but a bull market. We now have had the beginning of a bear market.

Are you looking at adding equities at current levels?

How can I buy more equities if I think the markets will go lower? For someone who has no equities at all, I would tell to start buying near 12,000-levels. And, if someone has 100 per cent of his money in stock, then I will say, sell some of it.

Is there more upside in gold?

I have a reason. I have been writing every month that people should accumulate gold. Yes, there is more room for gold to appreciate further. Most people do not own gold. Most people think gold prices are very high.

Today, the gold price is cheaper than in the 1980s when it was around $400 an ounce, considering the increase in global monetary base and the US money printing.

Will that hold true for silver, too?

Gold and silver will move in the same direction, but I prefer gold, though I have friends who prefer silver.

What will drive the gold price?

Gold bottomed out in late January and peaked out on August 23. My first thought was that the closely correlated move between treasury bonds (T-bonds) and gold was illogical.

Then, I considered that investors panicked into T-bonds because of a scare that the financial system would implode (flight to safety). For the same reasons, investors rushed into gold. In other words, the gold buyers were not buying gold because of inflation fears but because they were afraid of a systemic failure.

I think it is important for investors to understand the role of gold as an insurance against a systemic failure and not necessarily as a hedge against inflation. I should add that I own gold for both reasons, believing that it will perform well in both an inflationary and deflationary environment.

In addition, I am not selling any gold but traders should realise the gold price is extremely overbought and that it could easily drop toward the 200-day moving average that is, between $1,500 and $1,600 (not a prediction).

As I just said, I am not selling my gold because I expect much higher prices in future. But, near term, both T-bonds and gold appear vulnerable to a more serious correction.

Source: http://www.rediff.com/business/slide-show

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Not Such a Good News - Petrol Prices To Rise!

The OMCs are also expected to increase the price of aviation turbine fuel by around Rs 1,250 a kilolitre from the current Rs 56,260 a kl in Delhi.

The weakening rupee and firm international petroleum product prices have expanded the revenue losses of OMCs.

The loss on diesel would also increase by around Rs 1.25 a litre to nearly Rs 6 in the second fortnight of September.

The government had decontrolled petrol prices in June 2010 but has been indirectly exercising control.

The previous rise in petrol was done on May 15, when companies raised prices by Rs 5 a litre, though they were actually losing Rs 10 a litre.

On the same day, it also removed  5%customs duty on diesel and crude oil and raised the prices of diesel, kerosene and liquefied petroleum gas.

Currently, the PMCs -- Indian Oil, Bharat Petroleum and Hindustan Petroleum incur an under-recovery or revenue loss of Rs 4.57 on a litre of diesel.

These companies, which purchase crude oil at market rates, are required to sell diesel, kerosene and LPG at government-set prices, resulting in losses.

All the three government-owned companies incurred a heavy loss in the April-June quarter on heavy under-recovery that was not fully compensated by the government.

Oil companies calculate their under-recovery or over-recovery of a product based on its trade parity (80 per cent import price weight and 20 per cent export price weight) for the previous fortnight.

The price of ATF, 40 per cent of the operating cost for airlines, are already around 40 per cent higher compared to last year's corresponding price.

The decline, a relief, comes after a gap of six weeks during which prices moved up thrice. The rupee has averaged Rs 46.46 so far in September against the dollar, higher than the Rs 44.42 in July and Rs 45.32 in August.

The price of the Indian basket of crude oil, that averaged $107.24 a barrel in the last fortnight of August, has averaged well over $111 so far in the current fortnight.

Source: http://www.rediff.com/business/slide-show/slide
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Did you know: Gold down by Rs 150, silver sheds Rs 300 on weak Asian trend

Extending losses for the second straight session, both gold and silver today declined in the national capital due to subdued demand from stockists at prevailing higher levels amid a weak Asian trend.

Sources reveal while gold declined by Rs 150 to Rs 28,290 per 10 grams, silver lost Rs 300 to Rs 64,400 per kg.

Gold in global markets, which normally sets the price trend on the domestic front, declined by 1.6 per cent to USD 1,826.75 an ounce in Singapore.

Silver also slid by 1.1 per cent to USD 41.02 an ounce. Moreover, retail customers refrained from buying precious metals at existing higher levels, which also dampened the trading sentiment, they added.

On the domestic front, gold of 99.9 and 99.5 per cent purity remained weak and lost Rs 150 each to Rs 28,290 and Rs 28,140 per 10 grams, respectively. In the last session also it had lost Rs 150 in the previous session.

However, sovereigns remained steady at Rs 22,700 per piece of eight grams in restricted buying activity at higher rates.

In a similar fashion, silver ready declined by Rs 300 to Rs 64,400 and silver weekly-based delivery by Rs 430 to Rs 64,630 per kg, respectively. The white metal had plunged by Rs 1,000 in the last trading session on Saturday.

Silver coins also tumbled by Rs 1,000 to Rs 71,000 for buying and Rs 72,000 for selling of 100 pieces

Source: http://www.rediff.com/business/slide-show
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Update - Indian Stock Market

It’s becoming increasingly difficult to make sense of what's driving the Indian markets.

While outward indicators seem to suggest a downward trend, a sudden spike seems to challenge this view altogether.

No wonder, mutual fund managers have been stuck with non-performing stocks over the last several years, as it's becoming difficult to predict where the markets are headed.

While many would say volatility is the new normal, it wouldn't be far off the mark to say this turnaround may be short-lived, as India's domestic problems and global risk aversion continue.

Nearly a month after the S&P downgrade, emerging markets (and equity as an asset-class) have underperformed the developed markets, as the all too familiar risk aversion comes into play.

India's year-to-date underperformance has meant it has performed relatively better than other emerging markets on a monthly basis.

So, what can one make of the sudden upward swings in the benchmark indices?

Undoubtedly, this looks like 2008, when emerging markets bore the brunt of the risk-averse behaviour of foreign institutional investors.

This time, the sell-off is not that drastic. For four consecutive days, the Nifty has closed above the 5,000-mark and technical chartists expect the same to continue.

Despite this temporary relief rally (where selective buying may happen), the downward pressure on equity could remain.

For starters, despite the sell-off, India's valuations have not yet come off meaningfully, or so believe analysts. India's valuation premium over emerging markets has corrected over the course of the year, but not meaningfully.

Also, with GDP growth slowing to 7.7 per cent in the first quarter of FY12, corporate earnings may continue to slow down, triggering off a fresh round of EPS downgrades.
This is expected after the second quarter earnings season kicks off in October. To make matters worse, the investment cycle is showing no signs of reviving.

The Reserve Bank of India's (RBI) own projection of credit growth is lower than its deposit growth rates. Immediately, there seems to be no indication to suggest major FII fund inflows into India, as near-term concerns remain.

For equity investors in India, it is somewhat paradoxical to note that another wave of global risk aversion would actually be quite positive. This is because it would be likely to deter the RBI India from further tightening at its next policy meeting on September 16. This is because such increased risk aversion would likely lead to commodity price weakness

While most economists expect a 25-basis-point rise, all eyes will be on a sign on the stance of the central bank governor.

Source: http://www.rediff.com/business/slide-show
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The World This Week - Aug 29 - Sept 2'2011

The World This Week - Aug 29 - Sept 2'2011

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Save up - Set Short-Term Goals For Yourself

Setting goals is, perhaps, an important part of financial planning.

Goals define the way you should invest and, more important, the instruments you should use to achieve these.
For example, if you want to purchase a house after five years, investing in equity would help.

On the other hand, if you plan to travel abroad next year, a more conservative approach such as investing in debt instruments would be appropriate.

But, goal-setting is also a function of your age and means.

Often, those who are single aim for the impossible -- the latest car in a year, a flat in a prime area in two years and the latest gadgets -- all at the same time.

Financial planners have a simple advice for such people: Keep goals reasonable.
An analyst says,"Therefore, single people must be careful with their financial goals and investment decisions to ensure a seamless transition after marriage."

While he intends borrowing the amount for down payment from his father, he plans to stop his investments, at least partly, for repaying his loan.

As most home purchases are made on loans, the ability to finance a loan after marriage may not be known at this point.

Also, the plans of single people tend to be uncertain, he says.
For example, there may be sudden plans for higher education or shifting cities and such a liability may be difficult to shoulder.

Instead, it makes more sense to continue with the equity investments.
The corpus created can be utilised for multiple goals in future, including the down payment of a house, he adds.

Besides a house, many go in for an expensive car on loan too soon.

As of now, one should concentrate on creating a corpus that will help make these purchases in the future with as little loan as possible.

Typically, young people should be aggressive on equity, as their risk-taking ability and time horizon is much higher than senior citizens.

But, having an emergency corpus -- at least six months' salary -- in debt instruments will help in troubled times.

Source: http://www.rediff.com/business/slide-show
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