Six sins of Sensex

The nose-diving Sensex and the damp market sentiments may be giving you sleepless nights. We put the spotlight on the biggest market concerns at the moment and outline the way things may play out in future.

     Print Edition: July, 24 2008

Word’s worth

“Oil prices may go up to $170 per barrel as summer driving demand rises. But by the end of this year, we expect the prices to come down.”
— Chakib Khelil, OPEC chief

“Retail investors have got burnt so badly they will be reluctant to take on incremental risk in the short term. I don’t see revival for 2-3 years.”
— Rahul Bhasin, managing partner, Baring Private Equity Partners

“Everything depends on oil prices. If crude prices come down, the market sentiment will be better and equity funds will be in vogue again.”
— Nilesh Shah, CIO, ICICI Prudential

“There is some downside left to the market, but we are entering an attractive buying territory for long-term property investors.”
— Parth Gandhi, MD, Vision Global Investments

Source: The Financial Express, The Economic Times, CNBC-TV18

Telling figures

Some numbers that have immediate or long-term personal finance implications

34.92%
The fall in the Sensex from its January 2008 high of 21,206 points.This is the steepest six-month fall since it was established in 1979

1,041
million dollars was India’s current account deficit in the quarter ended March 2008, according to the RBI. In the same period last year, it recorded a surplus of $2,563 million

668
crore rupees is the worth of equities off-loaded by FIIs on July 2.They bought equities worth Rs 3,666 crore on the same day

2,40,000
crore rupees is the corpus with the Employees’ Provident Fund Organisation, and Rs 9,000 crore is added every year

The nose-diving Sensex and the damp market sentiments may be giving you sleepless nights. Money Today puts the spotlight on the biggest market concerns at the moment and outlines the way things may play out in future. By giving you the best and worst scenarios in each case, we will try to help you judge which way the wind will blow in the near future and take steps to safeguard your money.

Crude prices:

Rising oil prices is the single biggest worry facing the economy today as it has a domino effect on issues like inflation and interest rates. The broad view in the market is that oil is not going to go below $100 per barrel any time soon. It may, in fact, hit a high of $150 a barrel before showing signs of coming down. However, the good news, or so some experts believe, is that the market has already factored in this possible hike and the RBI’s consequent increase in interest rates. “With most of these negative factors being priced-in at their peak levels, we expect the Sensex to scale back to 15,000 points from September, provided we have a good monsoon and benign second quarter corporate results,” says Bhavesh Shah, vice-president, Asit C Mehta.

Inflation:

With inflation touching double digits and expected to stay that way till the the oil prices come down or a high base effect comes into play in January, the purchasing power of consumers and profitability of companies will be hit. The sales growth will slow down with a certain cut in discretionary spending. Wait till the end of 2008 for the inflationary effect on sales and profits to start wearing off, though a good monsoon could perk up rural demand by year-end.

Interest rates and corporate earnings:

Even if global oil prices remain constant, experts warn of another 100 bps hike in interest rates. The preview of first quarter results have indicated that the growth in corporate earnings has slowed, but this is because of a high base effect. Nobody is expecting a negative growth—which signals recession. The market rally kicked off in 2003 when the earnings growth forecast was at 20% and interest rates were 6%. Though we might not see that attractive a setup any time soon, earnings and interest rates are expected to be back in sync to reignite the cycle for the markets. “The actual test is in the second quarter (July-Sept) when the effect of high borrowing costs and high cost of doing business will play out,” says Amitabh Chakraborty, president (equity), Religare Securities.

Monsoon:

A good monsoon and a better kharif production is likely to stablise food prices. Sectors such as FMCG, auto and consumer durables are likely to benefit from the resulting rise in rural spending. Conversely, a bad monsoon could spoil the party for corporates and markets. So far, the rains have been good. But wait till August-end to hear the final word.

Political fall-out:

The uncertainty over the nuclear deal and impending polls are likely to affect the market in the short term. But if the elections are not advanced, the markets won’t suffer from political nervousness. If your investment horizon is till March 2009, you have no option but to live with the ups and downs—perhaps more with the latter. But for those investing for three years and beyond (as most retail investors should), this may just be the best time to buy, and hold all that you might have bought. That’s because low stock price also means high value if the business is fundamentally sound. A look at the movement in price-to-earning ratio (PE) of Nifty proves the point. From an all-time high of 28.29 in January this year, it has fallen to a little over 17—signalling a buying opportunity. Remember: when perceived risk is high, actual risk is often low.

— R Sree Ram

Online fund mart

Indian investors now have a new online fund supermarket, which will make mutual fund (MF) investment easier, not to mention, cheaper. Fidelity International has launched fundsnetwork. co. in in India, the fifth country to boast the platform after the US, the UK, Germany and Taiwan. Currently limited to Fidelity funds, the site will soon offer schemes from various MF houses. And while you have the option to invest online, which means that the entry load is waived off, documentation will still take place offline. A training centre, Fidelity Advisers’ Institute, is also on the cards, offering free e-learning and one-on-one training along with online preparatory tests for those appearing for NSE’s certification exams to get the Amfi Registration Number.

— Shruti Kohli

Digital signs

Adigital signature is an attachment with an e-mail or data exchange which authenticates the identity of the sender. It also ensures that no alterations are made to the data once the document has been digitally signed. Companies and businessmen use digital signatures for electronic communication and transactions. But the common man has no use for it other than e-filing his tax return. Besides, it is a costly affair (see table), so there are few takers. Of the 21.9 lakh income-tax returns filed online last year, only 11% were completely paperless—a majority still filed a physical verification of the return.

Digital signatures will become popular if their usage is expanded and prices brought down. The latter is already happening. Tax-filing portal Taxspanner.com has tied up with MTNL to offer a three-year package, which includes digital signature as well as tax return filing for just Rs 250 a year. “Digital signatures make e-filing truly and completely online. Our aim is to make it a paperless experience for taxpayers,” says Sudhir Kaushik, director, Taxspanner. However, its usage is limited. If Net-based transactions for buying mutual funds, insurance and the like are allowed using digital signatures, it would make life much easier for investors as well as reduce the paperwork for life insurance companies and mutual funds.

— Babar Zaidi

Issuing authority
Cost of digital signature
 1-year validity2-year validity
MTNLRs 300 for subscribers
Rs 450 for others
Rs 400 for subscribers
Rs 600 for others
TCS
Rs 1,245Rs 1,900
IDBRTRs 750Rs 1,500
SafescryptRs 995Rs 1,650
nCode SolutionsRs 1,090Rs 1,650

 

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