Repo Rate Cut, A view point

 Indian economy is on the growth trajectory. With the global turmoil pertaining to economic development and growth of markets, India has promised a great future for entrepreneurs across the world. The recent meetings and conversations of our honorable Prime Minister with the heads of global business forces clearly show how the world is looking at the India landscape. In such a promising scenario, a 50 bps rate cut from the table of RBI is like infusion of new vigor in the economy, which has the power to take the growth on a large platform. The sluggishness of the economy due to global woes is sure to be addressed by this positive move of the RBI governor.

The slump in the global commodity prices like petrol and tamable inflationary pressures made room for the rate cut. The inflationary pressure under control helped in addressing the need for lower repo which is sure to speed up the industrial growth and domestic consumption.

As far as investment scenario in the economy is concerned, the rate cut move by the governor along with the promised accommodative stance of the central bank promises a great future for the economy, which is experiencing favorable benefits due to international slow down. It is expected that the Indian bond market is set to see a substantive rally in the future, with great prospects for returns due to the positive move of the central bank.

Overall strength in the economy is the factor of strong demand in the country, and with the lowering of repo rates; the economy is also set to sail due to increased domestic consumption. With the lowering of the repo rates, the government bond yield is also on an all time low, promising a great rally for bond market in the future.   This creates a great room to invest in the debt market, with a promising return prospect in the future.

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How the right asset allocation can help in taking best benefits out of your savings and investments

If you plan to invest your hard earned money, you should be very careful in putting all your eggs in different baskets so as to benefit from the thing called diversification. In order to acheive great benefits and be safe from the risks of volatility, be sure to think about allocating your assets in various asset classes.

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June Newsletter

Our stance on various asset classes in the Indian Economy and how you should think about investing among them. The market outlook is your monthly dose of your investment strategy for the future.

Make sure to align your investments in line with this outlook to get the best benefits out of your savings and investments

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RBI Cuts Repo Rate by 25 bps.

Raghuram Rajan, The Governor of Reserve Bank of India, announced a repo rate cut on Tuesday in its monetary policy review. The cut was made of 25 bps from 7.5% to 7.25%. It was predicted largely by analysts and bankers alike and was predicted by Sangam time and again from the last few months. This has led to creation of a great opportunity in the debt fund segments and it is expected to positively impact returns in the coming time.

The fall in the retail inflation with slowdown in Industrial output has led to the rate cut and the same was expected too.

The markets had expected a steeper cut in the form of 50 bps and not fulfilling it hopes led to a downturn in to the markets. 

The further hopes of rate cuts is to be addressed in August 2015, in its bi-monthly policy review.

Keep holding to your investments in debt fund segments and plan to allocate your funds with the right assets in order to increase your returns in the times to come. 

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Opportunity Knocks Again

Bond yields have moved up, in tandem with global bond market nervousness. HDFC MF's fixed income team takes a quick look at what's changed on the ground domestically, and finds that none of the interest rate drivers have deteriorated - in fact all the key numbers - inflation, inflation drivers, CAD, fiscal deficit and economic activity - are all pointing towards lower interest rates. If fundamentals are looking good and sentiment has resulted in yields hardening instead of softening, wouldn't you agree with Prashant's team that opportunity is indeed knocking again? Take a look at the note that HDFC Fixed Income team has put together some points on whether one should add duration into portfolios now.

A summary of the recent changes in key economic parameters is given below:

These issues are discussed in greater detail below:

Trade deficit, CAD and INR

As can be seen from the table, CAD for 4QFY15 is likely to be in surplus due to lower crude prices. The recent jump in oil prices has to be seen in light of the fall from $110 to $45 and now bounce back to around $65. Even assuming an average crude price of $70 for FY 16, India would save nearly $20 bn and CAD should still be well below 1% in FY16.

In summary, CAD is in very good shape and is close to the best that India has experienced in a long time. Interestingly, FX reserves have increased by ~$24 bn in the last 3 months. The import cover has thus improved from below 7 months in Sep 2013 to nearly 9 months now.

Inflation

From the above table it is evident that WPI has fallen more compared to CPI and the gap between CPI and WPI is at record levels. Also, since WPI is focussed on B2B prices and CPI on B2C prices, it is logical to expect CPI to fall with a lag. This gap between CPI and WPI makes us optimistic about lower CPI going forward.

Also, generally speaking, the key drivers of inflation in the last few years - rising global commodity prices, depreciating INR, high rural wages growth, large increases in MSP’s, robust demand and weak supply have all reversed and this reversal is supportive of lower inflation on a sustained basis in our opinion.

Weak credit growth

Bank credit growth has been sluggish and is at record low levels. This clearly shows weak demand conditions generally and weak capex cycle specifically.

US yields rise

The US 10 yr Gsec yields have risen from 1.65% to 2.15%. There is still no consensus about the outlook for US rates. In our opinion, US yields will eventually rise, though the extent and timing is uncertain. What is interesting is the near record gap between Indian and US yields, which provides enough room for Indian yields to head lower even if US yields were to rise.

Conclusion and Outlook

All the key determinants of interest rates in India viz inflation and inflation drivers, fiscal deficit, CAD, economic activity point towards lower rates.

The recent strengthening of 10 yr G-sec yields from 7.65% to ~8% is mainly driven by sentiment (global sell off in bonds and bounce back in oil prices after a steep fall) in our opinion and does not change our view of lower rates in 2015 and 2016.

With this 30-35bps rise in yields, the risk reward has turned decisively favourable and we would urge investors to add duration through the following funds^:

We had long told our patrons to invest in Long term Debt funds due to the above factors and have given in writings and papers about the same:

Make sure to invest in Long Term and Fixed Income plans to get benefits of the current economic conditions in the true sense. Only By criticizing the government, you can never achieve anything much, but if you learn to get the benefits of improving fundamentals, you would surely achieve great returns in the coming time.

-With Inputs from Wealth Forum

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Is money important in this world?

Is money important in this world?

Finance is the availability of sufficient funds with an individual. When a person possess sufficient finances with him, he has the cushion to live life as per his dreams and desires. In the modern world, finances are really essential for someone to sail through the sea of this mortal world. This world is etched with materiality at every point. Nothing in this world, we see is spiritual in the real sense. This means that in order to live comfortably in this world we have to learn the way this world works. And that means that we too have to possess some material possessions in order to make our lives really fulfilling in this world.

Finances are important, really important in this world, because without money, no one can practically do anything in this world.

How to manage your limited resources?

The whole world suffers the basic problems of scarcity. Scarcity is the fundamental economic problem of the world, which means that human wants are unlimited while the resources available are limited. This means that a person is always in dearth of resources in the modern world. This applies to your wealth and money too. You always have to create a balance between your unlimited wants and the limited resources. In order to manage your limited resources, it is really important for you to plan your money and plan your wealth.

 This calls for a comprehensive plan to identify the opportunities to save, and channelize them to avenues which help the money to be invested in a way which can be a support for you throughout your life.

It is hence needed that everyone understands the fact that in order to keep a balance between the unlimited wants and the limited resources one needs to grow his/her resources through some techniques that help him/her in facilitating his unlimited desires.

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6 Movies you should Definitely watch if you want to know about finances

Finance and business movies had always attracted quite an audience, but still the glamour world is away from this world. It appears that the finance sector appear less appealing to the glamor.

It is always said that investments and glamor can never go hand in hand.

But when one needs to know about some of the ways this market and business functions, some movies can be a true delight showcasing both the good and the bad of an industry.

Some of the remarkable Hollywood movies which one needs to have a look if a person is interested in Financial Entertainment.

The Wall  Street (1987)

Probably one of the best in the lot. All the quotes, the dialogues and the acting in the movies depict a true image of how things work inside large organizations. A young and impatient stockbroker is willing to do anything to get to the top, including trading on illegal inside information taken through a ruthless and greedy corporate raider who takes the youth under his wing.

Must watch if you want a great lesson in investing.

Up In the Air (2009)

Up in the Air was released in December 2009 and is another film that had the luck of timing. George Clooney played a corporate consultant who flew around the country firing people for companies who couldn't do it themselves.At the time of the film's release in late 2009, the unemployment rate was near the highest of the Great Recession. Director Jason Reitman actually filmed dozens of real life people, who had been laid off themselves, getting "fake" fired, many of which made it into the film.

It's a rare film that focuses on corporate culture, depicting work colleagues socializing. It also offered a unique depiction of the road-warriors, those who fly from coast to coast for a living and spend more time in hotels than their own homes.

The Company Men (2010)

Released in late 2010 when the U.S. economy had started to improve, this movie, starring Ben Affleck, Tommy Lee Jones and Chris Cooper, may have hit too close to home for some. It fell off the radar quickly. It focused on a year in the life of three men who were downsized from a major corporation and how it impacted their lives and families.

It's one of the rare movies to depict corporate identity and how closely tied Americans are to where they work. At the time of its release, it may have been just too realistic in its portrayal of the struggles of those who were laid off but it's definitely worth checking out now.

Wall Street: Money Never Sleeps (2010)

Could anything really top Wall Street? Twenty-three years later, expectations ran high.

Michael Douglas reprised his iconic role of Gordon Gekko for this December 2010 sequel which again focused on the world of the top traders and the ultra-rich. Gekko is newly released from prison and looking rebuild his lost empire, trying to win back his family in the process.Many fans of the original movie felt let down by this sequel, but so few films actually depict the elite hedge fund world, it deserves to be on this list.

Margin Call

Margin Call is probably the least known of these 5 movies but it's easily one of the best.

It depicts events that led up to a financial crisis at a fictional large well-known financial firm. The firm's portfolio of mortgage-backed securities blows up leaving the firm vulnerable to a credit crisis, much like that which happened during the actual financial crisis. You don't have to have a thorough understanding of finance to follow this movie with an all-star cast led by Kevin Spacey and Jeremy Irons. If you want to know what the culture is like at an elite Wall Street firm, this is it.

Arbitrage (2012)

Released in September 2012, Arbitrage, like Wall Street, explores the world of the elite hedge fund manager. Richard Gere stars as a hedge fund manager who has cooked the books to conceal fraud at his investment firm. His daughter, who also works at the hedge fund, discovers the fraud and he scrambles to get out of it.There are side plots, but this is yet another movie that thrilled in depicting the master of the universe types that make up Wall Street. If you liked Wall Street, you should be sure to have this movie on your list.

-       With inputs from Zacks.com and imdb.com

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