Imports continue to see pressure from gold and oil…

   Imports for the month of August stayed elevated at the level of $35.46 billion. For the month of August, the imports of crude were up by 14.22%, which is understandable considering the stronger crude prices globally. Electrical goods imports were up by 27% and machinery imports were also up by around 19%. But the big worry is that gold imports for the month of August were up by 69%. Part of this can be attributed to the fact that last year was a weak year for gold imports due to tepid demand and a jeweller’s strike. All the same, the Indian economy can ill-afford such a massive growth in gold imports. Remember, that gold imports are an unproductive import and, unlike machinery or electrical goods, they do not add to domestic productivity. That is why a rise in gold imports is worrisome. The RBI and the government may have to seriously look at either reducing the level of gold imports, attaching export obligations or give special incentives for soaking up domestic gold supply.

                                 

                                                                                                                Source:-Angel Broking blog.

In the equity markets the only thing that matters is returns.

   More people have made money in the equity markets by focusing on risk than by focusing on returns. Once you learn to control and measure your risks your returns in the markets will automatically follow. It does not matter whether you are a small trader or a billionaire trader; you will effectively have to trade with finite capital. As long as capital is finite, the core challenge is to manage your risk.

There is another perspective to the superiority of risk over return. Let us say you took a wrong decision and lost 50% of your capital. Now on this smaller base you need to earn a 100% return to come back to parity. Which is why risk becomes so important? Risk management is not just about putting stop losses but it is also about when you should hedge your equity holdings and when you should stay out of the market altogether. The biggest challenge for any trader or investor is to ensure that the capital does not get depleted beyond a point. The bottom-line is that you must put more focus on managing risk. The returns will follow logically.

   

IIP RECOVERS BUT MANUFACTURING STILL DISAPPOINTs.

  

The IIP for the month of July 2017 was slightly higher at 1.2% compared to the negative growth shown in the month of June. However, manufacturing continued to disappoint. This IIP number was important for a variety of reasons. For the first quarter ended June 2017, the GDP had come at a multi-year low of just 5.7%. This had positioned the Indian economy a full 100 points below the Chinese economy in terms of economic growth. Even on the GDP front the major pressure came from the manufacturing sector with the SME sector being the worst hit due to the lag effect of demonetization. Additionally, the precautionary strategy around GST was also coaxing manufacturers to focus more on inventory depletion rather than on fresh production.

INDUSIND AND BHARAT FINANCIAL FINALLY AGREE TO EXPLORE A MERGER.

 

The proposed merger between IndusInd Bank and Bharat Financial has been a matter of discussion for a fairly long time. It was seen by many analysts as the perfect fit between the first mile and the last mile of financial services. IndusInd Bank with its strong client base and corporate relationships needed headway into the lucrative rural and semi-urban markets of India. That is where Bharat Financial has built granular expertise over the years. Bharat Financial, on the other hand, needed the support of a large player with a sound balance sheet and a healthy capital adequacy. IndusInd surely fitted the bill. Where there was little by way of surprise in the merger announcement, it would be interesting to understanding the modus operandi of the merger and the mutual synergies accruing to both the parties to the transaction.

                                                                                                                                    Source:-Angel broking blog.

WHY HAVE FIIS BEEN SELLERS IN THE MONTH OF AUGUST?

 Foreign Institutional Investors (FIIs) have been aggressively selling across emerging markets and India has been no exception. In the 4 weeks of August, FIIs have pulled out over Rs.15,000 crore from Indian equity markets with the trend turning sharply negative due to a combination of geopolitical uncertainty and weak earnings season in the June quarter. In fact, the month of April has been one of the worst months in terms of FII flows into India in the last 8 months. On the other hand, domestic institutions (DFIs) have been aggressive buyers in Indian equities in August and have infused nearly Rs.15,400 crore in August, which is holding up the markets. Consider the chart below which captures the gist of the cumulative FII selling that has happened in Indian equities.

                                                                                      

                                                                                                                                     Source:-Angel Broking Blog

 

CHECK THESE FACTS OUT BEFORE INVESTING IN AN IPO…

     After a fairly long lull of over 5 years between 2010 and 2015, IPOs are back in the reckoning over the last couple of years. Apart from quality IPOs like Alkem, Dr. Lal Pathlabs, Interglobe Aviation, Avenue Supermart and Sankara Building Products that performed exceedingly well after their listings, IPOs on an average have performed very well post listing in the last 2 years. Additionally, there has been quality paper hitting the market. After ICICI Pru Life became the first insurance company to get listed through an IPO, both SBI Life and HDFC Life are following closely behind with their IPOs. Additionally, two PSU general insurers viz. GIC RE and New India Assurance are also planning an IPO. While IPOs raised $2 billion in the fiscal year 2016-17, we are likely to see IPOs of nearly $5 billion in the fiscal year 2017-18.

      

            

     

IS IT TIME FOR THE RBI TO CUT RATES MORE AGGRESSIVELY?

Over the last few weeks there have been some key data points that have raised concerns over the pace of rate cuts adopted by the RBI. It may be recollected that back in February 2017, the Monetary Policy Committee (MPC) had shifted its monetary stance from  “Accommodative” to “Neutral”. Over the last few quarters there have also been some real concerns about falling GDP growth rate. For example, the GDP growth rate for the first quarter ended June 2017 has come in at a low of 5.7%, which is a full 100 basis points lower than the Chinese rate of growth. While this fall in growth can be partially attributed to the demonetization, there is obviously more to it than meets the eye.                                                                                   Source:-Angel Broking Blog.

                                                                                

How India ranks in forex reserves among peers?

   There is an interesting irony in the chart below Saudi Arabia used to have forex reserves of over $750 billion prior to 2014. Over the last 3 years Saudi Arabia has depleted over $250 billion worth of forex reserves trying to balance its budget at a time when it was selling oil at below the breakeven rates. This has resulted in the dividends of cheap oil getting transmitted to countries like India. That perhaps explains why India’s forex reserves have surged from $274 billion in 2014 to $394 billion in 2017. There is one more contrast in the top-8 list as depicted in the chart below The other 7 countries have built their forex reserves largely on the strength of their strong trade related earnings. India runs a large trade deficit of nearly $150 billion per year but this forex reserves are largely driven by FPI and FDI investment.                                       

                                                                                                                                      Source:-Angel Broking Blog.

 

DEMONETIZATION AND GST COMBINE TO PUT PRESSURE ON Q1 GDP.

   

The Reuters consensus estimate for GDP growth for the first quarter ended June 2017 was slightly lower at 6.6%. However, the GDP growth for first quarter announced on 31st August was nearly 100 basis points lower than the Reuters consensus. For the quarter ended June 2017, the MOSPI announced India’s annualised GDP growth at 5.7% with the Gross Value Added (GVA) growth at 5.6%. Before getting into the granular details of the GDP growth, it needs to be remembered that GDP growth was one of the key advantages that the Indian economy enjoyed over China. In fact, just a year back when China was growing its GDP at 6.5%, India was growing its GDP at 7.5% making India the natural magnet for foreign portfolio investments and FDI flows.                                                                        

                                                                                                                       Source:-Angel Broking Blog.

WHY THE PROPOSED CHANGE TO OPTION EXPIRY RULES ARE IMPORTANT.

    The regulator has been consulting the exchanges about a proposed tweak to our existing equity and index options expiry rules. When a trader buys an option, he will be required to choose whether the option is for excise on expiry or not. This case specifically pertains to in-the-money options and the entire anomaly arises due to the different system of imposing securities transaction tax (STT) when an in-the-money option is left for expiry on the expiry day. To understand this proposed modification in rules, let us first understand the concept of in-the-money options in greater detail and why this discrepancy in the calculation of STT becomes so important.