I am all for regulation. As in, I do not think a world without regulation, in the financial space, is worthwhile. But not all regulation is good, and the specific nature of my argument is that while I like the concept of regulation, I think we fail in the implementation.
Latest in my disagreement series is that AMFI is considering banning all upfront commissions to distributors by mutual funds. I think this is a bad step, and I think so even as I find it agreeable that we have no "entry loads" by regulation.
After our earlier post about Mutual Funds Hiking Exit Loads, we received notice that much of this is due to large upfront commissions demanded by distributors has gone up as much as 6% to 8%! This, ostensibly, is the reason why funds want larger and longer exit loads.
The Index of Industrial Production (IIP) for August 2014 came in at a surprisingly low 0.4% after showing promise in the three months.
The disappointment was Manufacturing, with a continued negative move (-1.4%) after a low number last month. (It’s the biggest component of the IIP)
At a different classification, we see that Capital Goods lost quite a bit (-11%) and consumer goods continue to stay negative.
A bad IIP number can only be bad news now – the new government was supposed to revive manufacturing, and this is not exactly a revival.
RBI has stopped buying dollars, it seems. In August 2014, it sold about $511 m of dollars, but bought $421 million of forwards, effectively staying flat on trade.
The USDINR went to about Rs. 60.9, up about 1%. The RBI hasn’t been buying, and FII figures for August were reasonably positive (Rs. 22,000 cr. or about $3.6 bn of net buying).
So sales must be from higher imports or higher debt borrowing by Indian companies.
August notwithstanding, the RBI has been buying a heck of a lot of dollars:
In terms of total outstanding forward exposure, we get data by maturity buckets,which shows the longer term maturity (approximately November 2016) at $25 billion (net sale), but is matched by forwards around 1 year of […]
In a strange move, Mutual Funds are increasing exit load time frames. This is usually a desperate situation by MFs to retain investors, or they are just using the current interest in equity funds to ensure that these investors stay even if the market gets volatile.
(Pic from the Business Standard Article)
Even bond funds haven’t been spared! Sure, the recent budget has made it less lucrative to exit fixed income funds within 3 years (short term capital gains tax applies) but surely, that should be incentive enough for people to stay.
While funds charged a 1% exit load in the past for about a year, it was mostly so after SEBI removed entry loads on funds. Funds used the 1% exit load to reimburse distributors, until a change in SEBI rules in 2012 ensured that the exit loads would be placed in the fund’s balance instead, not to be used for reimbursements.
Given this change, exit loads are […]
Chris Rock said this:
You know the world is going crazy when the best rapper is a white guy, the best golfer is a black guy, the tallest guy in the NBA is Chinese, the Swiss hold the America’s Cup, France is accusing the U.S. of arrogance, Germany doesn’t want to go to war, and the three most powerful men in America are named ‘Bush’, ‘Dick’, and ‘Colon.
And then in the finance world you know that things are really crazy when:
Stocks Explode Higher on Fears of Renewed Economic Weakness. No really. The US market exploded upwards for the Dow to close +274 after the Fed minutes came out that said the economic recovery was not at all very good, and that the rest of the world was going to the toilet.
After years and years of keeping interest rates at […]
RBI’s selling bonds, and selling them big time. With India moving to what seems to be a liquidity glut in the banking system, with the RBI now having to lend out lesser and lesser every day:
The net injection is the sum of
- Repo amounts (banks borrow overnight or for a short term)
- minus Reverse repo amounts (banks park money with RBI for short term)
- plus any overnight borrowings from the Marginal Standing Facility (excess borrowing).
We saw a brief up move because of the September 15 tax filing (when people pay taxes, the money goes into the government account into RBI and thus out of circulation, and thus banks borrow from the RBI)
RBI Now Selling Bonds to Reduce Liquidity
Strides has announced a special dividend of Rs. 105 per share, after October 22, 2014 (we don’t know the exact record date). This will result in the share falling by Rs. 105 per share in price.
The stock is up by 4% to 740. (Remember, it was at Rs. 640 just a couple weeks back!)
Fooling the taxman isn’t easy. And it’s important to understand what they already know you will do to avoid taxes, and have created laws to disallow that. Dividend stripping is one such concept.
In a strong stock market, let’s say you made a lot of "short term capital gains" by buying and selling stocks within one year. You now need to pay tax on these gains, but like normal human beings, don’t really want to.
You know that this fabulous stock is paying out a huge dividend, of about 15% of it’s market value. You pay Rs. 700 per stock, and it will pay out Rs. 100 as dividend.
The price of the stock will fall by Rs. 100 (because that’s how the market works) immediately after the dividend "record date" which is a few days away. (Companies announce dividend, and then a "record date" that is in the future)
You can buy now at […]
Ooh, this is rough. Bitcoin, in terms of USD, has fallen close to a 1 year low.
One "reason" for this fall seems to be that companies accepting Bitcoin are immediately converting to dollars, which means selling bitcoin on markets. The markets aren’t yet deep enough, so transactions on the sell side might not have enough corresponding buyers, so the price falls suddenly.
However at current levels Bitcoin is still double what it was last year, so the fall has to be taken in context. Still, breaking down below a key support level (two lows have been around the 340 levels in the past) isn’t going to be easy to ignore.
At some point, being a fixed supply currency, Bitcoins should only appreciate in USD terms […]
Banks have been pumping up the real estate boom by rapidly increasing the loans to higher cost housing, says the monthly RBI Sector Data.
RBI releases data on Credit by sector every month. As of August, Bank Credit had gone up to Rs. 56.22 trillion (Rs. 56.22 lakh crore). This has gone up 3x since 2007, a CAGR of 17%.
Forex reserves at the RBI continue to fall as RBI’s data last week shows the figure dip to a 3 month low at $314 billion.
Part of the reserve dip would be because the USD has been appreciating against other currencies (so if we hold Yen, and the Yen falls against the dollar, our holdings would be worth lesser in terms of dollars)
But because the rupee has also been falling against the dollar, it could be that foreign investors are pulling out capital in the last month, and selling rupees to buy dollars. Reserves can also go down when the RBI sells dollars.
RBI sells dollars only when the internal market prices show a deep fall beyond levels they find acceptable. We don’t know what such levels are, but we at Capital Mind had […]
The "flat" month of September keeps 2014 returns at 26%, but we are heading into what is the worst month of the year, on average. October has an average return of -1% on the Nifty, but the Standard Deviation is WIDE (9.3%).
Last year, though, we saw a massive turn in October as the index went up nearly 10%. Will we see a different October in 2014?
The Sensex, too, for continuity.
The YTD Return, till September, is the highest since 2009.
But we’re expecting a rough October. Our […]