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All is not lost for investors, here is IT’s analysts best bet (25-08-2015)
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Stocks in relief rally while rupee rebounds but stays below 66 against US dollar (25-08-2015)
![Sensex Nifty BSE NSE](http://images.financialexpress.com/2015/08/sensex-l-pti4.jpg)
Indian share indices recouped some losses from the near 6% fall on Monday to end Tuesday’s session 1.0% up. (Photo: PTI)
The rupee rebounded and stocks bounced back on Tuesday but the currency remained below the 66 mark to the dollar with the Reserve Bank of India (RBI) reportedly absent from the market. Equities recovered in line with the improved sentiment in most Asian markets but foreign institutions remained sellers offloading $314 million worth of equities on the back of sales of $773 million on Monday.
In the last five sessions foreign funds have sold $1.63 billion. Significantly, the yield on the US treasury yield was back above 2%, indicating investors were willing to take on riskier assets.
“(Reserve Bank of India governor Raghuram) Rajan’s commitment to use forex reserves to curb volatility had only a temporary soothing effect this morning. We continue to expect the RBI to eventually defend 65 per dollar by selling up to $20 billion,” Indranil Sengupta, India economist at Bank of America, wrote on Tuesday.
Brijen Puri, head (trading) at JPMorgan, believes the RBI may not defend the currency at a specific level as it would not want to create an imbalance amid a secular fall in most emerging currencies. Puri added the RBI would continue to curb volatility in the market.
The Indian currency outshone most of its Asian peers on Tuesday, staging the biggest single-day recovery since March 2014 to end at 66.10 after having dropped close to 67 levels. Dealers said the view in the market was that Monday’s 1.3% depreciation was overdone.
Mixo Das, Asia ex-Japan Equity Strategist, Nomura wrote Asia was not entering a new financial crisis but the current downside risks may nevertheless persist for some time.
“The pace of decline over the past few days, though, has also brought all of the indices to ‘oversold’ levels on RSI, implying we could see some technical rebound,” Das observed.
He added that broader concerns behind the emerging market outflows — weak EM growth, commodity price downside and looming rate hikes by the US Federal Reserve — were “likely to remain in play until either China data decisively strengthens or Fed hikes are pushed off the horizon”.
While Chinese stock indices closed 7% down, equities from South Korea to Europe recovered and the Dow opened in the green. Indian share indices recouped some losses from the near 6% fall on Monday to end Tuesday’s session 1.0% up. Market watchers said there was a fair amount of short covering and it was too early to tell whether the markets had priced in the uncertainty in China. Domestic mutual funds and insurers had made purchases to the tune of Rs 1,963 crore.
RBI deputy governor SS Mundra echoed Rajan’s statement that the Indian economy was better placed to withstand the impact from the Chinese market meltdown. “”From the viewpoint of where we were two years ago and where we are today, whether it is the level of our foreign exchange reserves or the current account deficit position, and going forward how commodities pricing situation is looking at, I would believe that in medium to long term, we are on the right path,” Mundra told reporters on the sidelines of an event.
On Monday, Rajan had said that the central bank would not hesitate to use its reserves to curb the rupee’s volatility. Currency market experts believe that the rupee’s relative over-valuation that has been hurting Indian exports could deter the RBI from protecting a level for the currency. According to a basket of currencies of 36 competing countries tracked by the RBI, the rupee was overvalued by 12% in July (when the spot dollar/rupee was hovering around 64/$). This could have reduced to an over-valuation of around 8% at current spot dollar/rupee rate.
“If the CNY depreciation is high and sustained, about 40% of India’s REER could turn adverse going forward. There could be a favourable impact on CPI and fiscal account, as long as decline in commodity prices is more than INR depreciation,” said Shubhada Rao, chief economist at YES Bank.
China has been a primary competitor in the global market for exports and Chinese finished goods have also found way into Indian markets in a big way. Indian exports have been shrinking for eight straight months now amid an over-valuation of the rupee. The yuan is down to a four-year low and amid fears that the devaluation will trigger a currency war in Asia, most currencies have hit multi-year lows as well. Given its relatively large over-valuation, the rupee’s fall has been higher than Asian peers ever since the yuan was devalued.
FSSAI moves to notify draft food guidelines (25-08-2015)
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Global market rout a huge risk for IPOs (25-08-2015)
The selloff in global markets, triggered by fears of a Chinese ‘hard landing’, poses a severe risk to India’s primary market, which is recuperating after four years of hiatus.
Merchant bankers and primary market observers said that grey market premiums saw a sharp fall on Tuesday and were reflective of the weakness in secondary markets. With the meltdown in in global markets on Monday and the prevailing uncertainty, retail investors have turned cautious and their absence may impact performance of forthcoming IPOs as it did with the Indian Oil Corp (IOC) offering on Monday.
Sources told FE the grey market premium of Power Mech Projects declined more than 60% ahead of its listing on Wednesday. The shares of Hyderabad-based power infrastructure company were quoting at a premium of R50-55 a share against Rs 150 levels late last week. The company had set a price band of Rs 615-640 for its IPO.
Navkar Corporation’s premium saw similar declines. The premium narrowed to Rs 20-25 apiece against Rs 55-60 per share last Friday. Shree Pushkar Chemicals and Pennar Engineered Building Systems (PEBS) lost the premium valuation, sources added.
Grey market is a pseudo over-the-counter market where IPO shares are bought and sold before a company officially lists on the stock exchange. It gives a broad indication of the appetite for a public issue.
Sandeep Nayak, CEO, Broking and ED, Centrum Capital, said retail investors’ participation is a function of sentiment and market behaviour and that they would not actively invest if the markets turn volatile. “We have witnessed dips in retail participation whenever markets turned volatile. For example, retail participation in June and July was down as Indian markets turned volatile,” Nayak said.
IOC’s secondary market offering by the government on Monday received a tepid response from retail investors even as they were entitled to a 5% special discount. While the offer for sale (OFS) managed to get fully subscribed, the retail book of the OFS was subscribed only 0.18 times.
The caution among retail investors comes at a crucial time as five companies — Navkar Corporation, PEBS Pennar, Prabhat Dairy, Shree Pushkar Chemicals and Fertilisers, and Sadbhav Infrastructure Project — have lined their public issues during the next 10 days. Together, these companies have the potential to raise close to Rs 2,000 crore. Ten companies have tapped primary markets so far this calendar and raised Rs 5,483.41 crore, data from Prime Database showed.
More than 60 companies scrapped their IPO plans between 2011 and early 2014 due to unfavorable market conditions, halting plans of Indian companies to raise more than Rs 65,000 crore through primary markets.
A section of the industry, however, said that the long-term state of the primary markets remains intact as India anticipates a bull-run in equity markets. Satyen Shah, EVP, Edelweiss Financial Services, said primary markets continue to be in a buoyant mood and subscriptions would depend on the nature of the issue.
“Performance of an IPO depends on the individual company, its track record and whether the pricing of the issue would leave something for the investors on the table or not,” Shah said on the sidelines of an IPO conference on Monday.
Mutual funds stand tall amid equity selloff (25-08-2015)
While equity markets were hammered on Monday amid a global selloff, mutual fund houses continued to see inflows. Asset managers are encouraging investors to put their money in balanced funds — and not pure equity funds — as markets are likely to remain unsettled over the next few months. On Monday, the Sensex plunged the most since 2009, closing at 25,741.56, down 1,624.51 points, or 5.94%.
Dinesh Kumar Khara, MD & CEO, SBI Asset Management company (AMC), said: “Despite such a sharp correction, our fund house didn’t see redemptions. In fact, we got net inflows on Monday. It shows retail investors are pumping in money whenever there is a correction in the equity market.” Tuesday saw Indian markets bounce back as they closed with gains of over 1%. Mutual fund participants are confident of seeing net inflows even in August.
In the last 15 months, equity funds have seen net inflows.
Data from the Association of Mutual Funds in India (Amfi) show MF inflows at over Rs 32,000 crore in this fiscal so far.
“I think Indian investors have understood that there was nothing wrong with the fundamentals and the fall in equity markets was mainly due to the slowdown in China. We believe retail investors will continue to put money in equity markets through mutual funds,” said Khara. Mutual fund players say flows are not only coming in from the top-15 cities, but also beyond, which is a significant success for the industry.
AUMs from beyond-15 locations grew from R1.82 lakh crore in July 2014 to Rs 2.04 lakh crore in July 2015, show data.
A marketing officer from a leading fund house said: “It was quite surprising that a few of the top fund houses got net inflows on equity side. With weak China markets and expectations of hike in interest rates in US markets, volatility will continue in Indian markets. Given such a situation, we are cautioning investors to go for balanced funds at this point of time and not go aggressively into equity funds.”
High dividend yield stocks (25-08-2015)
I think its not necessarily that dividend yield stocks cannot build capital. Obviously you cant compare them to the high growth companies but to people with a preference for lower volatility a carefully selected portfolio with decent dividend yield can give good income and also capital appreciation in future. Few things which one should consider while selecting such a portfolio is only include companies where:
a) Dividend payments can be sustained in the long term (think non cyclical business)
b) Scope for dividend increases in the future and hence avoiding companies with unsustainable payout ratios