'2011 will be tough for markets'

Arun Kejriwal, founder, Kejriwal Research and Investment Services, tells Krishna Merchant that with the second round of quantitative easing on, the US economy is likely to receive higher allocation of funds.

Edited excerpts:

Which sectors will see fresh allocation of funds by foreign investors in 2011?

The calendar year 2011 will be tough for everyone.

The Sensex gave a return of 16-17 per cent year-on-year in 2010 amid low volatility. There were only three corrections seen last year.

It will be difficult to make money in 2011.

With the second round of quantitative easing  on, there is a possibility that the US economy, which is already showing signs of recovery, may receive higher allocation of funds.

India may also suffer and may not see record inflows of $28-29 billion, as it requires daily inflow of Rs 500-600 crore (Rs 5-6 billion) to be in an uptrend.

Several banks have raised benchmark prime lending rates of late. What is your call on this sector?

Banks are likely to see some pressure in the December 2010 and March quarters.

They have raised BPLR, while Reserve Bank of India wants to narrow the spread earned by banks to bring down inflation.

Hence, their bottomline will be hit.

There is also a concern that the quality of assets has deteriorated in the last couple of quarters, which could put some pressure on the banking system.


[via rediff.com]

Resolution for 2011: Get rich

Achieve this goal by borrowing, investing and spending smartly. Let me hazard a guess. Your list of New Year resolutions may include certain do’s for your physical health (weight loss and other things) but none for your financial health. Don’t worry. This is not about the merits of financial prudence and abstinence. Rather, this is about just simple tips, whereby you can end 2011 a bit richer than what what you are at the end of 2010. These pertain to spending, insuring, investing and borrowing wisely, It is said that the longest journey begins with a single step. Well, here are a few steps you may like to take…

REIN IN SPENDING
Take care of your credit card and it will take care of you. Our elders advised us not to use credit cards. All, I am saying: use it smartly. First, integrate your card usage with your daily purchases, be it at petrol pumps, supermarkets and other places. Do not reserve it only for big-ticket purchases. Every swipe earns you reward points (usually one point for every Rs 100 spent). These can then be swapped for pretty useful items in due course. Some banks have a time limit within which the points should be redeemed. Ensure your points do not lapse.
Also, do not get taken in by the added glamour of ‘signature cards’ or ‘platinum plus cards’. These come with hefty annual fees attached. Haggle with the bank to offer you a ‘free for life’ card. If that is not possible, check if you can convert your existing one to a free card by paying a one-time fee.
Banks often advertise that you can enjoy a 50-day credit period. Beware, this is 50 days from the beginning of your billing cycle. Hence, try to ‘front-load’ your spending such that you spend more in the first 10 days rather than the last. This will enable you to enjoy a longer credit period.
Also, remember that the free credit period ceases once you undertake part-payment of a card bill. For instance, if your current bill is Rs 1,000 and you only pay Rs 100 and carry forward the rest, all future spending made by you will immediately start attracting hefty interest. Hence, try to pay your entire bill at one go. Revolving credit is one of the surest ways to end up poorer. Additionally, never fall for ‘zero EMI’ schemes, as the processing charges therein are nothing but interest in disguise.
If you like online shopping, sign on to ‘aggregator discount sites’ such as www.fashionandyou.com or www.brandmile.com. These offer hefty discounts on many known and upcoming brands and can help you save quite a packet over time.
INSURE ADEQUATELY
Purchase insurance online and enjoy discounts of over 30 per cent on the premia, as compared to purchasing through an agent.
Do not purchase life insurance if you are single and have no dependents. However, do not miss out on accident, health and property insurance.
If you have taken a home loan, taking a level term cover to protect your family may be preferable to opting for a reducing balance mortgage redemption cover. Calculate accurately before taking a decision.
While purchasing health insurance, give more importance to referrals from acquaintances, rather than opt for the one charging the lowest premium. Choose a company which settles claims in-house and does not rely on third-party administrators (TPAs).
Visit insurance comparison websites to get a better grip on the prevailing rates and other terms. Also, based on your judgement, you may opt for a higher ‘co-pay’ amount. This will help to reduce your premium. However, do not be wildly optimistic while making this judgement.
INVESTMENT PLANNING
If you are opening a new broking account, look at the online option first, as brokerage charges are usually lower as compared to the offline option. Also, if you are an active trader operating from home, choose an unlimited use internet plan, as it will be more cost-effective in the long run.
As a rule, never keep more money than required for emergency purposes in bank savings accounts, as you earn next to nothing in these. However, while doing so, ensure you maintain the required average quarterly balance in your account. This will help you avoid hefty non-maintenance charges. Also, as far as possible, try to transact online or through the bank’s ATM. Banks offer many of these services either free or at heavily discounted fees, as compared to conducting them at the branch. Opting for online statements may also entitle you to some reward points on your debit card.
While investing in a second home, enter into back-to-back agreements with a tenant if possible. This will ensure the rental you earn meets the whole/part of your EMI.
Never invest more than the amount absolutely necessary for tax saving in equity-linked savings schemes (ELSS). There are several diversified funds as good as these, without the three-year lock-in period.
Stay clear of ‘structured products’ unless you are absolutely clear about the costs involved and the payoff structures. Opt for low-cost products such as index funds or exchange traded funds (ETFs). Even saving 100 basis points of cost per year will increase your wealth by a large amount over time.
MINIMISE BORROWING
Put up as high a down payment as possible while purchasing a house or car. This will not only help you save on interest but also enhance your credibility and help you bargain for other freebies.
Take a housing loan with daily or monthly reducing balance, as compared to a quarterly or annual one. Also, if you have surplus funds, you could repay your housing loan to the extent possible.
Procure a copy of your credit history from Credit Information Bureau (India) (CIBIL) or any other credit rating agency, before embarking on the borrowing process. This will help you know where you stand and also bring any mistakes to your notice well in advance.
Visit loan comparison websites to get a better grip on the prevailing rates and other terms.
And, finally, keep an eye on your financial ratios. There are key financial ratios which you must always track to get a bird's-eye view of your situation. For instance, your savings ratio will broadly indicate whether you are saving enough to meet your future goals. Similarly the investment/savings ratio and your asset allocation percentages will reveal if you are channelling your savings in the right direction. The EMI/take-home income will flash red in case your debt-servicing exceeds a comfortable level (say 45 per cent).

Gold poised to hit new high next week

The gold futures for February are expected to hit a new high next week on the Comex division of the New York Mercantile Exchange on strong buying support above $1,400. On the Multi Commodity Exchange (MCX), the gold February futures are likely to move past Rs 21,000 per 10 grams on a strong long build-up above Rs 20,500. February gold settled at $1,421.40 an ounce up 2.96 per cent on the week as speculators preferred to hold long positions even above $1,400.
The gold futures closed above $1,400 and also ear day’s high level in all the five trading sessions of last week as traders covered short positions after observing a strong undercurrent above $1,400. The volume picture chart for five trading sessions shows 75-100 per cent volume below the day’s closing levels, mostly though a change of hands. The open interest in February futures remained unchanged despite gold futures gaining 3 per cent last week.

The precious metals rally is likely to continue into the first week of 2011 as the concerns over the euro zone debt, fiscal and monetary stimulus in the US and currency considerations will remain steadfast, indicate gold analysts. Bloomberg’s market picture chart (MKTP) for the week is hinting at a volume-driven price level of $1,434-1,438 and the TPO based support at $1,400. The 21 days moving average also indicates an upside of $1,432 and support at $1,400.
Some market watchers warn that the potential for profit taking in January is possible, but many say strong demand under the market will limit significant losses and won’t change the long-term bullish trend. The options traders expect a big rally in the gold prices as despite the price level moving closer to the new high, the 1,420-1,440-strike call options saw a significantly poor volume last week. The put writing was seen in $1,410-1,420-strike puts, indicating strong support based at that level.
Gold futures rallied 30 per cent this year, climbing to an intra-day record $1,432.50 an ounce on December 7, amid Europe’s debt woes. “Gold has done so well this year because government activity indicates record deficits, low interest rates and an obvious lack of fiscal discipline,” said Tom Winmill, who manages the Midas Fund in New York. “Gold’s rally will continue next year as inflation pressures continue to build and currencies remain weak,” said Li Ning, an analyst at China International Futures (Shanghai) Co.

[via businesstandard]

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Oil PSUs' losses on diesel sales climb to Rs 7/litre

State-run oil marketing companies IOC, HPCL and BPCL have seen their losses on diesel sales climb to almost Rs 7 per litre amid a steep rise in international crude prices.
"The three retailers, who calculate the desired retail price on 1st and 16th of every month based on the average international price in the previous fortnight, were losing Rs 6.09 per litre on diesel till last week. But this month, the losses have climbed to Rs 6.99 a litre," an industry official said.

Based on the average price of imported crude in the second fortnight of December, the three firms are losing Rs 275 crore in revenue every day on selling diesel, domestic LPG and kerosene at the subsidised rates dictated by the government, which are way below the actual cost.

"There was a meeting of the Empowered Group of Ministers (EGoM) headed by Finance Minister Pranab Mukherjee scheduled for last week to consider a hike in diesel and LPG rates, but it was postponed," the official said.

"Without the price hike, the gap between domestic retail price and their international benchmark is widening," he added.

Besides diesel, IOC, BPCL and HPCL are losing Rs 19.60 per litre of kerosene and Rs 366.28 per 14.2-kg LPG cylinder.

"For the full fiscal, the three are projected to lose Rs 72,812 crore in revenues at current prices," the official said.

If prices are not hiked, the government will have to come up with other ways to compensate the oil marketing companies for their losses. The Oil Ministry wants the Finance Ministry to compensate the oil companies in cash for at least half of their under-recoveries by making adequate provisions in the Budget, while upstream oil firms like Oil and Natural Gas Corp (ONGC) will shoulder one-third of the burden.

The Finance Ministry recently stated that it will meet no more than one-third of the actual revenue loss at the end of the current fiscal.

The official said in the absence of an adequate compensation package, the three fuel retailers will end the fiscal in the red.

In the second fortnight of December, 2010, IOC, BPCL and HPCL were losing Rs 6.09 per litre of diesel, Rs 17.72 per litre of kerosene and Rs 272.19 per domestic LPG cylinder.

On the basis of the average international oil price in the first fortnight of December, 2010, were projected to lose Rs 68,361 crore in revenue during the full fiscal.

But with international oil prices firming up to a two-year high of $92 per barrel, the revenue loss in 2010-11 is now projected at Rs 72,812 crore, the official added. 

[via businesstandards]

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'Expect another strong year of FII inflows'

Cameron Brandt, Global Markets Analyst, EPFR Global, says The elements are in place for another strong year.

Indian equity markets were largely driven by FII flow in 2010. How do you expect the flow this year?

The elements are in place for another strong year. There is still over $2.8 trillion sitting in the money market funds we track, yielding next to nothing, and both US fiscal and monetary policy remain expansionary.

Investors are turning sour on bonds in general; equity funds have the momentum. Last year, bond funds were on the up.

What do foreign investors expect in the new year?

Investors have been kicking the tyres a bit harder as the year winds down. The glacial pace of India's [ Images ] reform story, its fiscal deficit (especially with states' obligations) and vulnerability to higher oil prices could all become issues.

There's a definite move up the risk curve on, as they search for value and yield in the emerging market universe. The frontier equity funds we track have taken in fresh money at double the pace that BRIC [ Images ] equity funds have this year, and both Indonesia and Turkey have been hot.

So, investors will be less forgiving of the bigger emerging markets such as India if they don't meet expectations for earnings, GDP and public finances.

In the event of a US recovery, could Indian markets see slow growth in flow of foreign money?

Not in 2011. Trend growth in the US, assuming a balanced recovery, is probably no more than four per cent versus six-eight per cent for India. Even when the US economy was roaring along at full speed in 2005-07, investors were steering significant sums into emerging markets like India, in anticipation of their long-term growth stories.

[via Rediff.com]